FCA to update guidance on repossessions

Lenders and the wider industry have until 10am on 10 March to respond to the proposed guidance, which the FCA said has been designed to ensure that mortgage customers whose homes may be repossessed are treated fairly and appropriately.

The regulator emphasised the particular need for this where there are risks of harm to customers left vulnerable by coronavirus.

The FCA said firms will also need to comply with any relevant legislative requirements which may prevent firms from enforcing repossession in certain parts of the UK.

The regulator did acknowledge, however, that delaying repossession can lead to poor customer outcomes as a result of “increased balances and equity erosion”. This is why the regulator plans to permit repossession activity from next month, albeit under stringent criteria.

Guidance for consumer credit was updated in January which enabled firms to repossess goods and vehicles from 31 January, but only as a last resort, and in accordance with government public health guidelines and regulations.

The guidance stipulates how lenders should treat customers off the back of payment deferrals, where shortfalls have accrued. It states that when considering whether to repossess the property, and if all other reasonable attempts to resolve the position have failed, firms should consider the following on shortfalls:

• The shortfall arose by agreement between the customer and the firm and in exceptional circumstances;
• The customer was not expected to address the shortfall during the payment deferral period and so may have had less time to do so;
• Unless the customer is unreasonably refusing to engage with the firm in relation to addressing the shortfall, a firm should not repossess without the customer’s consent solely because of a deferral shortfall.

The effects of the suspension on repossessions were evident in some of the retail banks’ full-year reports. Lloyds Banking Group, for example, reported a backlog of repossessions that built up during last year. The lender’s 2020 financials state that the stock of repossessions decreased to 343 cases by 31 December last year, compared to 1,171 at the same time in 2019.

In line with regulatory guidance, the group suspended all repossession activity on mortgages from March 2020, and this left a large increase in the volume of cases in late stage arrears.