It was recently reported that the Financial Services Authority (FSA) was conducting an investigation into the practices adopted by lenders with regard to the treatment of their customers who had got into arrears, or defaulted on their loans or mortgages.

The initial review has now been completed and the FSA has warned a number of lending firms that they are not doing enough with regards to treating customers fairly and need to behave in a more responsible manner in instances where customers get in arrears with their mortgage loan repayments.

The review was started due to worries from the regulator that loan and mortgage providers were not taking into account a borrower’s personal situation and circumstances before commencing repossession proceedings and were treating all customers in the same manner, rather than trying to establish the reason why the arrears situation had arisen. The review also found significant weaknesses in the arrears and repossession procedures adopted by a number of lenders, particularly in the sub-prime and bad credit loan sectors.

The FSA has said that lenders must be more flexible in their approach towards arrears handling and do everything they can to help a borrower who is struggling to keep up with the repayments on their mortgage loan and that repossession proceedings should be only considered as a last resort.

The FSA has drawn up an action plan to ensure that lenders meet the regulator’s principle of treating customers fairly, which will investigate a number of issues including fees and charges brought by lenders and also individual arrears and default handling procedures.

In total, thirteen lenders were reviewed for the work which included both mainstream and specialist lenders, taking into account self certification, buy to let and bad credit loans and although the FSA found that most mainstream lenders had suitable procedures in place for handling loan arrears, there were a number of concerns with the specialist sector, in particular that they were adopting a standard policy, rather than treating individual cases differently.

Lesley Titcomb from the FSA said “as our data shows in these current market conditions more people are struggling to meet their mortgage payments and it is vital that firms treat them fairly. This means paying attention to individual circumstances and not repossessing their homes when there may be an alternative solution. Repossession has to be the last resort.”

It is hard enough for someone who may be wanting to buy a house, particularly for the first time, what with having to save up sufficient money for a suitable deposit and other costs, along with the recent difficulties in being able to obtain a mortgage or homeowner loan, many are being put off buying altogether.

One cost which doesn’t help buyers is that of stamp duty, a tax charged by the Government on anyone buying a property for more than £125,000. This is charged at a rate of 1% in the price range £125,000 to £250,000, 3% above £250,000 and 4% on properties over £500,000.

During an interview with the BBC, the Chancellor of the Exchequer, Alistair Darling announced that he was looking at a number of measures designed to help the housing and mortgage loan markets in the UK and one option which was being considered was a suspension of stamp duty until the housing market recovered, in order to encourage and help those individuals wanting to buy a property.

Although the suggestion was condemned by the Liberal Democrats as trying to “bribe” individuals into buying houses, it was widely welcomed by those involved in the mortgage loan and housing markets.

The Council of Mortgage Lenders (CML) has supported a review of stamp duty and said in a statement “while addressing funding shortage remains critical to underpinning the housing market, the Government should not lose sight of the fact that it also has an opportunity to reform stamp duty and in a way that can support home ownership and first time buyers.”

The National Association of Estate Agents was also in support of the suggestion. Their Chief Executive, Peter Bolton King said “Drastic action is needed in order to get the cogs whirring in the market place again. If this suspension does occur, then it will provide a much needed boost to consumer confidence.”

There have been numerous reports on the sale and rent back schemes which are becoming increasingly popular in the UK at the present time and also on some of the horror stories which have happened to individuals who have been desperate enough to sign up to such a scheme. There has also been call for some form of legislation to regulate this growing market, which at the moment has a free reign to prey on some of the most vulnerable members of our society.

Sale and rent back schemes are designed to help individuals, who are in serious debt problems with their loan and mortgage repayments and probably facing a repossession order, to clear their loan debts and continue to live in the family home by selling the property to a company who will then let the house back to them.

The problem with many of these schemes is that the home owner sells the property for a minimal price, much less than the market value and is then subject to a standard tenancy agreement, which gives them no long term right of residency within the property and many individuals have found themselves still losing their family home, without reaping the benefits of being able to sell it at market value.

The National Landlords Association (NLA) has now suggested that there should be a code of conduct for this area of business, in order to protect consumers from rogue companies and has published a draft proposal for consideration by those within the industry. The NLA view the document as a starting point which will eventually create a working code of conduct for sale and rent back companies.

The chairman of the NLA, David Salusbury said “Unsurprisingly, sale and rent back continues to be a controversial issue. Far from being an alternative to the many equity release products aimed at older people, sale and rent back offers flexible tenure for those who can no longer afford the costs of home ownership.”

The Office of Fair Trading (OFT) have also commenced an investigation into sale and rent back schemes and hope to publish their findings in September. It is likely that the outcome of this will be to recommend some form of code of conduct for those working within this sector.

It is good to see some interest being taken in this area, which will hopefully end up with a reasonable level of protection for consumers, as has been the case with equity release loans and mortgage schemes since the introduction of the Safe Home Income Plans (SHIP) organisation. It would be a positive move if we saw a similar organisation being introduced for sale and rent back schemes. We will of course keep you updated as this story develops.

Following the problems created by the credit crunch and the difficulty which is being faced by many borrowers in the UK who are building up arrears and defaults on their loan and mortgage repayments, with some now even facing the prospect of repossession of their homes, there has been a lot of talk regarding the irresponsible lending practices in the recent past of many high street banks and building societies, as well as other lending institutions, brokers and intermediaries.

In fact, it could be easily argued that many individuals are in financial difficulty now due to the fact that they were offered a loan or mortgage based on ridiculously high income multiples, or no check was made on their affordability criteria, or they were offered a self-certification loan where no income or expenditure checks were made at all. There is little wonder then, that unscrupulous individuals within the financial sector have exploited these avenues for their own gains, giving no thought for the plight of the consumers who are left to pay the bill.

The Office of Fair Trading (OFT) has now launched an investigation into irresponsible lending within the consumer credit markets, following significant alterations to the Consumer Credit Act, which draws attention to the practice of irresponsible lending. This consideration is now a priority for the OFT when they are considering whether a company should be allowed a consumer credit license (CCL).

The new rules will include all new applicants for a license as well as all those who already hold a CCL and will take into account marketing and advertising literature used for any type of loan, as well as compliance practices and sales processes within firms, along with customer care and arrears and default handling procedures.

The new rules are not likely to be of much benefit to those poor individuals with loans who have been victims of irresponsible lending practices and some might say that due to the increasingly tightened lending criteria which has now been introduced by the majority of lenders, who are themselves suffering from arrears and defaults on loans they have granted in the recent past, the problem going forward on new loans, has largely been removed as lenders (now older, wiser and licking their wounds) are screening potential customer more closely than ever with regard to affordability factors before offering a loan.

Banks and building societies have been having a pretty tough time of it over the past few months, since the onset of the credit crunch and many have been struggling with liquidity issues as new lending has slowed down to record low levels and a large number of borrowers are struggling with the repayments on their existing loans and mortgages, building up arrears and in some extreme cases, facing the prospect of repossession, which in turn creates additional pressure for the lender.

In an attempt to encourage savers, many building societies are now offering particularly attractive interest rates on new accounts in order to attract new money into their institution and ease the problems with their own liquidity issues, which in turn will help allow the society to return with more confidence to the personal loan and mortgage market.

It would appear that building societies plans are working, as the Building Societies Association (BSA) has just announced that a record amount of money has been invested with societies during the first six months of the year. The figures show that £6.29 billion has been invested with building societies during the first half of the year, which is an increase of 65.9 per cent above the same period for last year.

As we face an uncertain financial future, many individuals are being much more cautious about what they spend their money on and are starting to focus on savings to ensure that they have a suitable emergency fund to help see them through potentially hard times and many are taking advantage of the attractive interest rates being offered by building societies. The director general of the BSA, Adrian Coles said “with an uncertain economic outlook and stock market turbulence, savers are wisely viewing building societies as excellent homes for their money.”

This is some welcome news for building societies many of whom are feeling the full impact of the credit crunch with regard to new lending as the number of new personal loans and mortgages has fallen by around 59 per cent during the first six months of 2008. Mr Cole said “it is no surprise that lending figures are so low. This reflects the depressed state of the housing market. Many societies have chosen to follow a conservative lending policy to ensure that they maintain the high quality on their loan books.”