Page last updated at 12:56 GMT, Friday, 28 November 2008

Lenders given 'fairness' deadline

For sale signs
The FSA says that difficult conditions in the market will persist

The City watchdog has threatened lenders with fines if they fail to give fair treatment to customers when dealing with arrears on home loans.

Mortgage providers have been given a deadline of 31 January to prove that customers facing arrears or repossession are treated fairly.

Previous criticism of lenders' policies by the Financial Services Authority (FSA) prompted an angry response.

The move comes shortly before a drop in some lenders' variable mortgage rates.

'Challenging environment'

The FSA has written to all chief executives of mortgage lenders and administrators telling them to review their arrears policies.

Lenders understand that in the current difficult economic environment there is bound to be a high level of scrutiny
Michael Coogan, CML

"Conditions in the mortgage market are difficult and it seems likely that these conditions will persist for sometime," said Jon Pain, FSA retail managing director.

"In such a challenging operating environment it is particularly important for senior management to ensure the fair treatment of customers."

Previous criticism of "weaknesses" in arrears and repossession policies led to a strident response from the Council of Mortgage Lenders (CML) which was angry that all lenders were grouped together for criticism, saying that most lenders had well-structured policies.

But the CML was more supportive in its response to the latest deadline.

"Lenders understand that in the current difficult economic environment there is bound to be a high level of scrutiny of their handling of mortgage arrears," said CML director general Michael Coogan.

Adrian Coles, director general of the Building Societies Association (BSA), welcomed the latest move.

"With arrears forecast to increase over 2009, it is essential that all lenders ensure that their arrears and repossession policies treat customers fairly," he said.

"Building societies want their borrowers to remain in their homes if they have repayment difficulties, and genuinely view repossession as a last resort."

Rules

The FSA has rules regarding the treatment of mortgage customers in arrears, although they are relatively non-prescriptive.

House keys
Major lenders came under government pressure to cut rates

They state that lenders should have a written policy that "reasonable" efforts are made for customers to be able to pay back arrears over time, that they are told about independent advice that is available, and that repossession is a last resort.

The letter tells chief executives to review these written policies and to assess whether customers are being treated fairly in practice.

It threatens action against those lenders that flout the rules. This could include fines or, at worst, ban lenders from operating.

The FSA has shown a willingness to hand out hefty fines during unrelated inquiries into the mis-selling of loan insurance.

Mortgage rates

Lenders had also been facing pressure to cut variable mortgage rates following November's dramatic drop in the Bank rate by 1.5 percentage points.

All the major lenders, except Barclays' lending arm the Woolwich, are cutting their standard variable rate (SVR) with effect from next week.

The Woolwich has a very small proportion of borrowers on a SVR mortgage, as those whose fixed-rate deals come to an end are moved on to a tracker deal.

Ray Boulger, of mortgage brokers John Charcol, said he expected the Bank rate to fall by a further one percentage point in December.

But, he suggested that mortgage providers would only cut their SVRs by 0.25 to 0.5 percentage points in response.

"As the Bank rate gets lower, it would become more difficult for them to pass it on," he said.

HOW MORTGAGE LENDERS RESPONDED

Lender SVR before BoE decision SVR after BoE decision Rate change (percentage points)
HBOS 6.50% 5.00% -1.5
Nationwide BS 6.19% 4.69% -1.5
Abbey 6.94% 5.44% -1.5
Lloyds TSB/ C&G 6.50% 5.00% -1.5
Northern Rock 7.34% 5.84% -1.5
Barclays 6.64% Under review  
RBS 6.69% 5.19% -1.5
HSBC 6.25% 5.44% (5 Dec) -0.81
Alliance & Leicester 6.94% 5.84% -1.1
Bradford & Bingley 7.09% 5.59% (7 Dec) -1.5
Bristol & West 6.59% 5.49% -1.1
Britannia BS 6.30% 5.30% -1
Yorkshire BS 6.60% Under review  
GE Money 10.39% 8.44% -1.95
Coventry BS 6.84% 5.34% -1.5
Standard Life 6.59% Under review  
Clydesdale & Yorkshire 6.64% 5.14% -1.5
Chelsea BS 6.94% 5.79% (31 Dec) -1.15
Skipton 6.45% 5.95% -0.5
SVR: Standard Variable Rate. All changes on 1 December unless stated.      



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