Mortgage Arrears Fees

by Mark Johnston

Almost 200,000 home owners are significantly behind on their mortgage payments, according to the council of mortgage lenders (CML).

Most if not all of these 200,000 home owners could be or have been hit with excessive mortgage arrears charges from their lenders.

In July 2011, Paul Myners, financial services secretary to the treasury, described some lenders arrears fees as ‘extraordinary’.

Excessive fees are where the charge is higher than the administrative cost to the lender, for example if it costs £10 to send a letter but the lender then charges £35.

Unfair charging is for example when lenders find sneaky ways in which to incorporate extra charges such as charging non direct debit payment fees when no payment has been made.

According to research more than 46,000 mortgage account holders have been charged a £15 monthly direct debit fee for non payment, whilst they were in arrears.

BBC 4’s money box programme found that Barclays charged borrowers in arrears with their mortgage a monthly fee of £40, whilst Lloyds charged £31 for a follow up arrears letter and the Nationwide building society charged £95 for arrears counselling. Even though borrowers make an arrangement to repay their arrears these ‘extra’ charges keep mounting up.

Many people believe that it is fair to say that charging £30 or more for a computer generated letter warning an already struggling home owner that their mortgage is in arrears seems pretty unfair. creator, Martin Lewis states that “most people in arrears are already in financial hardship and therefore should be treated with sympathy”.

Some lenders claim that many of these charges exist to tackle problem borrowers; it does however seem unfair to ‘punish’ the vulnerable alongside the ‘feckless and fraudulent’.

These charges on mortgage arrears is just the latest of many failures of regulation, with financial watchdogs seeming slow to act.

Many experts and borrowers alike would like to see the financial service authority take up arms on behalf of the British borrowers. They feel it is high time that regulators took steps to ban unfair penalties, charges and fines once and for all.

In conclusion it is high time for the British banking culture to be based on fairness not on fines and profit.

However the financial services authority (FSA) has launched a crackdown on unfair fees that those already behind on payments are receiving.

It has announced proposals which are designed to better protect borrowers already in arrears from yet more debt which comes from excessive and unfair charges.

The financial services authority (FSA) proposals demand that lenders stop ‘hammering’ those in hardships, for example they should stop allocating payments to clear an arrears charge and use the payment instead to clear the mortgage balance. They have also recommended that lenders record all arrears handling calls, keep records for up to 3 years, provide simpler arrears statements and importantly lenders should now take in to account an individuals situation before hitting them with a repossession order. Repossessions should always be the very last resort.

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