The arrears management processes of mortgage lenders often increase the arrears problems faced by borrowers, according to a report by Citizens Advice Bureau (CAB).
The report, entitled Set up to Fail, also criticises brokers and lenders for failing to ensure their clients understand the risks of entering into a mortgage.
The CAB also said many borrowers were not ending up with unaffordable and inappropriate mortgages, particularly those buying council homes, because they did not shop around, instead relying on their broker's recommendations.
The report, which was created from over 1,200 case studies across the UK, says mortgage lenders are too quick to seek a court possession order, rather than negotiating with the borrower, a problem recently highlighted by the FSA.
The CAB says lenders have little incentive to consider alternatives to court action, despite possession orders adding significantly to a borrower’s debt. The report also says sub-prime lenders are responsible for a level of possessions that is far above their market share.
Case studies also found many homeowners were selling their homes to controversial and dangerous sale and leaseback schemes because their lender was unwilling to help them manage their arrears.
However, the Council of Mortgage Lenders (CML) criticised the report for being too simplistic in its criticisms.
The CML says the majority of consumers receive a high level of help and questioned the CAB’s data set.
A statement from the CML says: “Those who seek the advice of CAB are, by definition, those who have not managed to reach a mutually satisfactory arrears management plan with their lender. Citizens Advice itself also points out that the borrowers covered by the cases in this report typically have lower incomes than the national average.”
Brokers also received a share of blame for rising repossessions problems, with the CAB claiming many brokers are making inappropriate recommendations to their clients.
One case study found a man with a low income was struggling to pay his mortgage payments of £474 a month and his credit card debts. A broker referred him to a sub-prime lender to remortgage his home; however, monthly repayments would have been £640 per month.
The CAB has called on the FSA and Office of Fair Trading to ensure lenders are treating customers fairly and says the Government should provide help to borrowers in difficulty through the benefit system. The Ministry of Justice is also being asked to develop a pre-action protocol to ensure possession is only used as a last resort.
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First mentioned in Cridland Report
Second acquisition of 2019