Civil Justice Council Mortgage Arrears Protocol

The BSA response to a Civil Justice Council consultation

The BSA represents all 59 building societies in the UK. Building societies have total assets of just under £350 billion and, together with their subsidiaries, hold residential mortgages of £245 billion, more than 20% of the total outstanding in the UK. Societies hold about £215 billion of retail deposits, accounting for more than 20% of all such deposits in the UK. Building societies also account for over 38% of all cash ISA balances. Building societies employ over 50,000 full and part-time staff and operate through more than 2,100 branches.

We have the following comments on the specific questions that you ask in the paper:-

Do you consider a protocol for mortgage arrears cases would be helpful?

We believe that the protocol largely replicates requirements that are already on building societies.

Mortgage lenders, including building societies, that offer residential mortgages have to follow the Financial Services Authority’s Mortgage Conduct of Business (MCOB) requirements that govern residential mortgage lenders in the UK. 

MCOB covers all aspects of residential mortgage lending from initial advice to a potential borrower right through to possession procedures should the borrower find themselves in arrears. So as a consequence of this, lenders are tightly regulated in how they deal with their customers.

MCOB13 specifically governs how lenders will deal with borrowers who have repayment difficulties. Lenders are required to work with borrowers to seek to identify ways in which they can be helped to overcome their arrears problems and try to avoid taking possession action.

In the consultation paper you say that the protocol will encourage greater dialogue between lenders and borrowers, and thus enable court time to be used more effectively. We share this goal, but in view of the willingness (and MCOB obligation) of lenders to discuss arrears problems with borrowers and to try to avoid court action, we doubt that any meaningful reduction in court time will be achieved.

As such, we find it difficult to see why a protocol is necessary, since it merely mirrors the requirements that building societies are already subject to. Should a lender not follow the requirements that are already contained in MCOB13, then action can be taken by the FSA against the lender.

Do you agree with the scheme of the protocol?

We fully agree with the scheme of the protocol. Already, building societies are trying to intervene as soon as mortgage arrears begin (or even before if the borrower contacts them ahead of, for example, losing their job), helping borrowers seek assistance and rescheduling both secured and unsecured debts.

Building societies encourage borrowers to contact them as soon as possible when the borrower anticipates that they will have a problem making mortgage repayments. The earlier that a borrower contacts the building society, the sooner they can work with them to develop a solution that suits both parties. And the sooner they start to look at overcoming repayment problems, the greater the chance that a solution can be found that avoids the borrower losing their home. Many arrears problems are caused by a sudden unexpected change in a borrower’s circumstances (for example losing their job or a bereavement) and a few months help from their lender can give the borrower time to sort their finances out and be able to make repayments again.

However, this is not always the case. Some borrowers, for whatever reason, choose to ignore attempts by their building society to contact them or they fail to stick to an agreed repayment plan. For such borrowers, societies have little choice but to commence court action, and the protocol needs to be more clear that, unfortunately, court action is the only way of getting some borrowers to seek to overcome their arrears problem. 

Other comments

We have a specific concern over the requirements of paragraph six that possession proceedings should not be commenced against a borrower who can demonstrate that they have a “reasonable” chance of help via the income support system.

This benefit cannot be claimed for nine months, and with any outcome undetermined, lenders would not want to wait before issuing proceedings. We therefore believe that this requirement is unreasonable, since it could effectively prevent lenders issuing proceedings for a lengthy period after the arrears start. Waiting such a long time is not just an issue for the lender – if arrears are building up over several months, the costs to the borrower could also be substantial by the time the case is heard.

We note that the protocol also prevents lenders from issuing proceedings while a MPPI claim is submitted. We believe that this is a reasonable request, as there is usually only a three month waiting period for such claims.