Housing Rights responds to the FCA on “automatic capitalisation” of mortgage arrears

In October 2016 the Financial Conduct Authority (FCA) announced it was consulting on new guidance on the treatment of customers with mortgage arrears. The FCA guidance covers potential compensation for mortgage customers who may have been affected by double billing, in the wake of a successful strategic case taken by Housing Rights in 2014.

Housing Rights welcomes the FCA’s response to this issue, which aims to provide a framework which lenders can use to ensure fair remediation for customers. We also welcome the FCA’s characterisation of lenders’ practices as ‘automatic capitalisation’ leading to overpayments, and their statement that they ‘expect firms to put this right, and ensure the practice ceases.’

In Housing Rights response, we offer the following comments on the detailed points of the draft guidance:

The NI market is distinctive

A significant proportion of Northern Irish homeowners are still in negative equity when compared with Great Britain. Housing Rights would welcome any further information on the FCA’s analysis that included a Northern Ireland specific sample or consideration of any potential regional impacts, specific to Northern Ireland.

Possessions & possession orders

The FCA’s proposed framework suggests that certain mortgage possession cases should be considered for remediation. However, Housing Rights would like to see these proposals go further. We recommend that the framework include a provision requiring lenders, where a mortgage account subject to possession action before a court is reconstituted, to inform the Court of the outcome of this reconstitution before continuing with possession action.

“Reconstitution” or “extinguishing arrears”

Housing Rights advisers can attest that for some clients, “extinguishing arrears” may be the best option. Reconstitution alone, in a small number of cases, could result in some customers becoming more vulnerable to possession action. Housing Rights recommends that the FCA framework include a provision that where a borrower has been meeting the higher, automatically capitalised Contractual Monthly Instalment (CMI), and finds themselves potentially subject to possession for arrears due to any reconstitution, the lender considers offering the extinguishing of arrears and – formal, consensual – capitalisation.

Increase threshold to Contractual Monthly Instalments

The FCA states that anyone paying below £10 a month in automatic capitalisation would not need to have their mortgage reconstituted as it would ‘deliver little benefit’ to the customer. Due to the potential for customers with substantial additional payments to “miss out” on reconstitution, and the lack of detail as to what the FCA have defined as ‘little benefit’, Housing Rights does not support the £10 threshold in the draft guidance.

Customer Credit Reference Agency Records

Although the framework proposes that customers credit records are to be amended when they are out of arrears, it does not propose amendments to credit records for any other ‘smaller’ amounts. Housing Rights believes it should be the lenders responsibility to remedy the effects of any errors on customers, as fully as they possibly can.

Consequential Loss

Housing Rights believes that customers who took on debt from alternative sources in order to maintain their wrongly increased mortgage payments should have a right to compensation for any consequential loss.