On 6 December 2018, the FCA published a webpage providing the findings of Thematic Review 18/5: Management of long-term mortgage arrears and forbearance (TR18/5). The publication of TR18/5 follows an FCA review which specifically focused on firms’ interactions with customers with mortgage arrears of greater than 12 months. The regulator looked at firms’ arrears management policies and strategies and reviewed customer files, to understand how well firms are delivering appropriate customer outcomes.

TR18/5 notes that generally firms treated customers in long-term financial difficulty appropriately, however some firms’ arrears management practices were identified as risking a poor customer experience and having the potential to cause harm. The FCA also found isolated examples of harm where customers were unable to recover from their arrears position and their mortgage debt continued to increase. This was observed where customers were on high interest rates.

Common issues TR18/5 identifies include:

  • incomplete record keeping;
  • inconsistent handling of vulnerable customers;
  • inadequate reviewing arrangements;
  • narrow quality assurance processes;
  • lack of offering alternative options for the repayment of arrears; and
  • barriers to effective engagement.

The FCA reminds firms that they must be compliant with all relevant rules in the Mortgages and Home Finance: Conduct of Business sourcebook (MCOB) when handling mortgage arrears (particularly MCOB 13.3.4A R; MCOB 13.3.2A R (1); and MCOB 13.3.2A R(6)). The FCA also recommends firms to consider the FCA’s prudentially focused finalised guidance in respect to arrears. This includes:

  • the primary aim of forbearance should be to enable the complete recovery of the mortgage through the full repayment of arrears (Finalised Guidance 11/15 (FG11/15);
  • in circumstances where this primary aim cannot be achieved, the secondary aim would be to recover the customer into a sustainable terms position on their mortgage. Sustainable terms are defined as revised contractual terms where the mortgage can be fully services over its full life (FG11/15); and
  • payment arrangements that are agreed with the customer should be reviewed regularly (for example every 3 – 6 months), with the aim of recovering the loan as soon as is reasonably possible (FG11/15).

Firms within the FCA’s sample for TR18/5 have been contacted, and in some cases the FCA is considering further regulatory action. The FCA will continue to monitor firms’ practices regarding the repayment of arrears.