Policy
Arrears and Possessions
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Contact: Victoria Barnard Date: 25 Aug 2009 |
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BSA Members and Associates can find more detailed information by logging into the members only section of the website.
Introduction
Building societies are committed to working closely with borrowers in financial difficulty and who are willing to resolve their financial situation. Building societies aim to provide support and forbearance which best meets the individual circumstances of the borrower, with the ultimate aim of allowing the borrower to remain in their home.
Customer Committment
In order to demonstrate the building society approach to borrowers in financial difficulty, the BSA has developed a customer commitment statement, supported by all building societies, which outlines the guiding principles when dealing with borrowers with mortgage payment difficulties.
These include:
- Assessing the circumstances of the borrower and offering a solution appropriate to their circumstances
- Recommending the borrower seeks free, independent money advice
- Extending forbearance for a reasonable period of time.
The full customer commitment statement can be accessed via the link below:
BSA Customer Commitment Statement
Regulatory requirements
All lenders, including building societies, are regulated by the FSA Mortgage Conduct of Business Rules (MCOB). MCOB 13 sets out the requirements upon lenders with regards to arrears and possessions.
In addition to the FSA requirements, lenders are also required to follow the Ministry of Justice pre-action protocol for mortgage possession claims. This sets out the requirements upon lenders prior to starting a possession claim. The requirements of the protocol are broadly in line with the requirements of MCOB 13.
MCOB 13 and the Pre-action Protocol can be viewed in full via the links below:
Mortgage Pre-Action Protocol (link to MoJ website)
Government schemes
In 2009 the Government launched two new schemes and extended the existing Support for Mortgage Interest (SMI) benefit, to provide help to borrowers experiencing difficulties paying their mortgage as a result of the economic downturn.
Homeowner Mortgage Support
Homeowner Mortgage Support scheme (HMS) was launched in April 2009 and closed in April 2011. The intention of the scheme was to support borrowers who are unable to make full repayments due to a temporary loss of income.
The scheme allowed the lender to defer up to 70% of the monthly interest payment, with the borrower paying the remaining 30%. In return the Government provided the lender with a guarantee covering 80% of the interest deferred, which would be paid if the borrower defaults and the lender suffers a loss on repossession.
A borrower may remain on the scheme for up to two years. The guarantee will last for four years, from the date the borrower exits the scheme.
Although supportive of the Government’s intention to keep vulnerable borrowers in their home, the majority of building societies have decided not to formally participate in the scheme. Instead, societies continue to support borrowers in financial difficulty via their existing arrears management policies, supported by the BSA customer commitment statement.
Mortgage Rescue
In January 2009, the Government launched a Mortgage Rescue scheme in England. Under the scheme, local authorities can arrange for a property to be bought outright and rented back to the former owner via ‘Mortgage to Rent’, or for a share of the property to be purchased under the ‘Shared Equity’ option.
Similar versions of the scheme are also available in Scotland & Wales.
The BSA is suppportve of Mortgage Rescue, particularly since it caters for the most vulnerable borrowers.
From March 2011 the Homes & Communities Agency (HCA) is responsible for the allocation of funding for Mortgage Rescue. The role of CLG and other central Government departments will cease. This also means an end to the quarterly statistics published by CLG.
The HCA has confirmed that funding is available for Mortgage Rescue in 2011/12 and 2012/13, with a smaller amount available in 2013/14 for applications already in the pipeline. The scheme will therefore close to new applications from households in spring 2013, or earlier if available resource is fully committed before that point.
Support for Mortgage Interest
Support for Mortgage Interest (SMI) is a benefit paid to eligible homeowners who are in receipt of income support, income based jobseekers allowance, or income related employment and support allowance. Payments are made towards the mortgage interest payment, for loans taken out to purchase the property, or for specific home improvement loans.
There is a period of 13 weeks before the benefit is paid, the capital limit is set at £200,000 and it is paid at a rate of interest set by DWP (currently 3.63%).
DWP recently consulted on plans to reform the welfare system, which will impact on SMI. The BSA has written to DWP regarding the future of SMI as part of our response to their consultation.
The full consultation and the BSA response can be accessed via the links below:
