Brokers can help troubled borrowers

Statistics from the Department for Communities and Local Government show that more than 60,000 households are under threat of repossession. If this transpired it would be a disaster for the market as well as for those affected.

The Council of Mortgage Lenders says this figure has only been exceeded twice – in 1991 (75,500) and in 1992 (68,600), although 1993 came close with 58,600.

The increasing number of repossessions is down to several factors including reduced credit quality, increased income multiplies, automated underwriting and the rise of self-cert and sub-prime lending.

But the situation is worse now than it was in the early 1990s because of the huge amount of personal debt households are carrying.

And with debt increasing at a faster pace in February than in any month in the past five years, the problem isn’t going away.

Against this backdrop, the Money Advice Trust in conjunction with the CML has issued advice to borrowers likely to face payment shock.

At a corporate level, lenders have documented procedures to ensure that borrowers in arrears are treated fairly. The CML has had a statement of practice on the handling of arrears and repossessions since 1992.

But any sign of negative equity will place the individuals running lenders’ loss departments in a quandary, torn between doing the right thing for their customers and their paymasters.

Customers’ rights are clear due to a combination of repossession case law and the Financial Services Authority’s regulations.

First, the decision in the case of Cheltenham & Gloucester vs Norgan (Court of Appeal 1995) allows borrowers to spread arrears over the whole term of their mortgages and ensures that lenders consider all possible solutions before demanding the keys.

Second, under its Treating Customers Fairly initiative, the FSA requires lenders to honour their responsibilities throughout the lifespan of customers’ mortgages.

This requirement applies equally to borrowers who go into arrears and those who keep up repayments.

In times like these, brokers’ relationships with their customers should be at their best. Like many brokers, I have al-ways seen client relationships as long term and stretching beyond initial advice.

It’s possible that clients will feel comfortable going back to their brokers to discuss their financial hardships and it’s also possible that given the wide range of solutions available to them nowadays, brokers are better placed than lenders to help.