Mortgage protections exist but lenders may need to seek possession

Last year mortgage lenders supported the Financial Conduct Authority's (FCA) temporary moratorium on possessions, which provided reassurance to both residential and buy-to-let borrowers during a difficult time. The FCA recently confirmed that the moratorium would end on 1 April 2021, 12 months after it began. This means that lenders will return to operating under regular rules.

In 2020, there was a historic low of only 1,460 residential possessions. Given the moratorium, it is inevitable that possessions will increase in 2021 due to the backlog of cases that will have been in train before the pandemic began.

This continues to be a stressful time for people whose finances have been impacted by the pandemic, and lenders continue to provide tailored support for customers that need it. Possessions are only ever a last resort once lenders have exhausted all options to support the customer to return to paying their mortgage.

It is important to remember that housing possession cases are very low, even out of pandemic times. Put simply, lenders want to support people to stay in their homes if possible, particularly if any loss of income is temporary, and strong protections exist for customers struggling to pay their mortgage.

Following the last financial crisis lending rules were tightened so that a customer needs to pass an affordability assessment, which includes buffers on how much they can afford to pay before being granted a mortgage. Even with a change to income, this buffer means that a borrower might be able to continue to make their mortgage payment. If they are not able to do so, lenders will offer a range of forbearance options to allow borrowers to pay what they can afford until their financial circumstances improve. If a customer is worried about paying their mortgage, speaking to their lender early on is key.

A possession also requires authorisation from the courts, which can be a lengthy process. Before the lender can bring the case to court, the courts require them to demonstrate that all attempts to reach alternative arrangements with the customer have been unsuccessful. This protection does not apply to renters. A Possession Order is granted by a judge only after considering the borrower's individual circumstances. Even if a lender obtains a Possession Order, possession is not necessarily a forgone conclusion. At all points throughout the process, if the borrower can restart paying some of their mortgage, lenders will consider personalised repayment plans to avoid the need for repossession and help get customers back on track with their finances.

With these protections in mind, under what circumstances would a lender seek to repossess? A mortgage is a contract between the borrower and the lender, where the loan is secured on the property and the borrower is under contract to repay the loan over an agreed period. If a borrower misses their mortgage payment, arrears accrue which will need to be repaid. For someone in financial difficulty, continual missed payments will mean the borrower is not keeping up with their side of the contract and will result in high levels of arrears. If the borrower is not in contact with their lender, or it becomes clear that the borrower's circumstances will not improve and they cannot repay, the lender will have to start possession proceedings to recover the loan, ultimately by selling the property.

Before the case goes to court, the lender will issue what is known as a Letter before Action to the borrower informing them that their mortgage is no longer sustainable, and they will be starting the legal process to repossess. This communication is important as it sets out to the borrower how much they owe and how they can get help.

If a customer receives this letter, it is vitally important that they get in touch with their lender. Lenders will also refer borrowers to both independent debt advice and housing advice, and provide information on how they might receive housing support from a local authority. Taking these steps could provide customers with a holistic view of their finances and options to get help. Ultimately, the earlier a customer takes action and speak to their lender, the more options are likely to be open to them.


Free event: Financial Difficulty through the Pandemic - part of the Customer Experience Summit, 7-11 June

The scale of measures introduced in 2020 to assist those facing a sudden change to their circumstances was unprecedented. More than a year after the first UK lockdown, how much have the measures helped? Which customer segments are recovering well and who will need much more support over the coming year and beyond? How have consumer expectations shifted and how will that affect what they expect of their providers in the future? A panel of senior policy makers will discuss these questions and more as we examine the fallout of the pandemic and the resilience of the sector

The Customer Experience Summit is a new UK Finance event where we will discuss the path to economic recovery and the opportunities to do so in ways that benefit customers and meet their changing needs.

Tickets are completely free and include access to all sessions, including: 

  • Financial Difficulty Through the Pandemic
  • Access to Financial Services
  • Protecting Vulnerable Customers
  • Improving the Home-Buying Experience for Customers
  • Covid and the Changing Psychology of the Customer Experience
  • Human-Centred Product Design
  • Data-Driven Decision Making
  • Becoming Your Customer's Preferred Provider
  • Building a Culture Where the Right Behaviours Thrive at Every Level
  • Payments: Improving Consumer Protections
  • Open Banking and Open Finance
  • Keynote Panel: Strategic Priorities

You can learn more about each session and register for your complimentary ticket on the UK Finance website, here.

Area of expertise: