In a review of lenders’ approaches to mortgage arrears management, the Financial Conduct Authority (FCA) found firms had improved practices, placing greater emphasis on the need to treat customers fairly, but identified areas on which the industry should now focus.
To build on the progress so far, the FCA has challenged firms to do more to deliver consistently good outcomes for borrowers. The FCA reiterated the importance of firms making decisions that take account of the specific personal and financial circumstances of borrowers – and reminded firms to deal sensitively with borrowers who have particular vulnerabilities.
The FCA’s review is published in the context of an extended period of historically low interest rates. The regulator has asked lenders to take action to identify customers susceptible to arrears if interest rates rise and have appropriate strategies to treat them fairly.
Clive Adamson, director of supervision at the FCA said:
"Since we last looked at arrears management we have been pleased by the progress that firms have made. However, there is still work to do.
"Lenders need to treat customers in financial difficulty fairly. We want firms to take further action to strengthen their arrears management practices and invest in their systems and people to make sure that they get this right.
"We are already working with firms and trade bodies to help them embed a culture centred on delivering the best outcome for customers based on their specific circumstances."
The FCA's report calls on firms to build on the progress made by:
- better supporting and empowering front line staff to help them make appropriate decisions; and
- providing greater flexibility in their practices to support more tailored outcomes in the best interests of borrowers.
The review of mortgage arrears management forms part the FCA’s wider strategy for improving standards in the mortgage market and reflects the FCA’s new forward looking, judgement-based approach to supervising firms.
At the end of April, the Mortgage Market Review (MMR) comes into force. The MMR reforms aim to ensure we have a sustainable mortgage market that works for consumers. The reforms are a common sense set of measures to help ensure borrowers can meet the repayments of the mortgage they want both now and in the future, taking into account the likelihood of future interest rate changes.
In May 2013, the FCA also published a review into interest only mortgages along with guidance, which set out what the FCA expects firms to do to ensure the fair treatment of customers who are unable to repay the capital sum at the end of the mortgage term.
Notes for editors
- Thematic review on mortgage lenders’ arrears management and forbearance[1].
- FSA arrears and repossessions reviews, 2008 and 2009[2].
- More information on the Mortgage Market Review.
- Finalised guidance[3] for firms on dealing fairly with interest-only mortgage customers who risk being unable to repay their loan.
- On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- Find out more information about the FCA.