Mortgage Arrears Compensation

Mortgage Arrears Compensation.

The Financial Conduct Authority (FCA) yesterday announced it will look at new guidance on the treatment of customers with mortgage arrears.

Some mortgage lenders have been automatically including mortgage arrears balances within their monthly mortgage interest calculations, meaning that you are paying interest on late interest as well as the normal mortgage amount outstanding.  This means that lenders who have not reduced interest on arrears to zero are collecting arrears over the remaining mortgage term through a higher monthly payment and, also continuing to pursue the arrears through their collections processes treating them as immediately payable. 

In short, this is compounding the problem, resulting in people falling further and further behind or taking much longer to repay their mortgage.  The FCA suggests, indirectly this is in breach of their rules.

Comment

Commercially, if you are owed money, you should be allowed to charge interest on it.  We therefore, disagree with the FCA.  We believe it is the FCA who is at fault for not making the mortgage market safer.  We applaud the Mortgage Market Review (MMR) which introduced mortgage affordability tests, not just at present day and rates but also forcing lenders to complete a “stress” i.e. checking that you can still afford your mortgage if rates go up by X%.

This is where, we suggest a simple requirement that you must have Life, Accident, Sickness and Unemployment Insurance as part of your mortgage application.  It is a legal requirement to have motor insurance when we drive a car, why cannot the same requirement be in place when you borrow X times your income.  If you earn £20,000 a year and you have a £100,000 mortgage debt, if you lose your job or if you are off long term sick, and therefore do not get enough sick pay (private or statutory), your insurance would take over.

This would protect the borrower, the lender and indeed the Government who would not have to cover mortgage interest costs.  Yes, the insurance would be an expense, but in most cases, it would be much cheaper than what you currently pay in council tax, and it would make us all responsible for our own borrowing.