The Financial Services Authority (FSA) has threatened mortgage lenders with large fines if they fail to give fair treatment to customers when dealing with arrears on home loans. Mortgage providers have been given a deadline of 31 January to prove that customers facing arrears or repossession are being treated fairly.  

The FSA has written to all chief executives of mortgage lenders and administrators telling them to review their arrears policies.  

An FSA statement says, “Conditions in the mortgage market are difficult and it seems likely that these conditions will persist for sometime. In such a challenging operating environment it is particularly important for senior management to ensure the fair treatment of customers.”  

Previous criticism of “weaknesses” in arrears and repossession policies led to a noisy response from the Council of Mortgage Lenders (CML) which was angry that all lenders were grouped together for criticism, saying that most lenders had well-structured policies.  

However, the CML was more supportive in its response to the latest deadline. “Lenders understand that in the current difficult economic environment there is bound to be a high level of scrutiny of their handling of mortgage arrears,” said their response statement. 

The Building Societies Association (BSA) has also welcomed the latest move. “With arrears forecast to increase over 2009, it is essential that all lenders ensure that their arrears and repossession policies treat customers fairly. Building societies want their borrowers to remain in their homes if they have repayment difficulties, and genuinely view repossession as a last resort.”  

The FSA has a set of rules regarding the treatment of mortgage customers who have fallen into arrears, although they are quite weak and non-prescriptive. They state that lenders should have a written policy that “reasonable” efforts are made for customers to be able to pay back arrears over time, that they are told about independent advice that is available, and that repossession is a last resort.  

The FSA letter tells chief executives to review these written policies and to assess whether customers are being treated fairly in practice. It threatens action against those lenders that flout the rules. This could include fines or, at worst, ban lenders from operating.  

The FSA has shown a willingness to hand out hefty fines during unrelated inquiries into the mis-selling of loan insurance. There are hopes that a same willingness with regards to repossession policies will ease the pressure on people having trouble making their mortgage payments.

A survey for the National Association of Estate Agents (NAEA) has shown that property sales rose slightly in October, for the second month in a row. The survey showed that the average estate agent sold seven properties last month, up from just six in September.  

The NAEA said sellers were now being more realistic and were cutting their asking prices.

The Globrix property search website said price cuts on homes last week averaged £16,871 across the
UK.

For those who haven’t noticed, the UK property market is in the middle of the worst slump in living memory because of the credit crunch and a subsequent mortgage drought. Average prices, according to the biggest lenders, have fallen by about 15% in the past year and sales have fallen by more than half.  

The data shows that across the UK 5,803 properties were subject to a price cut last week, averaging £16,871 each. In Norwich 2.6% of sellers cut their prices, by an average of £13,683 for the 106 properties concerned.  

In Solihull 40 properties (2.2% of those on the market) had their asking prices cut by an average of £13,130. That was followed by Rotherham where the 38 properties (2.2%) whose owners slashed their prices did so by an average of £9,210.  

Buyers are now holding all the cards and sellers need to realise that if they want to sell in this market then they may have to accept an offer they wouldn’t have even considered six months ago,” said a representative of Globrix.