The Financial Services Authority (FSA) has ordered that home repossession must only be used as a last resort. Lenders have been told by the FSA that they face unlimited fines, as well as other sanctions, if they treat struggling homeowners unfairly.
They sent a letter to 280 chief giving them time to formulate a code of conduct detailing how they intended to treat borrowers, who were have difficulties with their repayments, in a fair manner - otherwise they would incur the wrath of the regulator.
This news follows an alarming survey, which shows that 700,000 homeowners are expected to default on a mortgage payment, or possibly be driven to selling their homes.
People most at risk are the 35 to 44 age group, who are likely to have large mortgages and young children. They are also worried about losing their jobs, as 180,000 people have become unemployed.
The FSA rules require every reasonable measure to have been taken to resolve a problem of missed payments before a house is repossessed. In addition, lenders must stop harassing customers, particularly through the use of excessive phone calls and ringing outside the approved hours of 8 am to 9 pm.
The increasing number of repossessions is expected to reach 45,000, which is the highest for a number of years. In a research study, commissioned by The Life Trust Foundation, people were asked if they expected that they would default on a mortgage payment during the next twelve months, or whether they may have to consider selling their house due to their income being hit by the downturn.
Of the 11.7 million homeowners in Britain, 6 per cent said they would, which is the equivalent of around 700,000 households. Only 3 per cent of the people questioned over the age of 55 said they were worried, compared to 8 per cent in the 35 to 44 age group. The MD of Dennehy Weller, who are financial advisers, said that unemployment was the biggest concern, particularly amongst people in their 30s with children, as they felt the most vulnerable to the downturn, whereas people in their 20s imagined themselves to be indestructible. Debts can be repaid by careful budgeting if you have a job, but once you are unemployed there is no buffer, he said.
The Life Trust Foundation, which was established to highlight the financial implications of longevity, found concern amongst people aged between 45 and 54, as they watched their pension funds being ravaged by the recession. Lord Hunt, the chairman, says that people, are having to resort to selling their property to fund their retirement.
The FSA have released figures showing that nearly one-fifth of people who took out a mortgage, during a two year period, which equates to just over one million people, are at risk of having their home repossessed. This number does include people who took out their first home loan and those who re-mortgaged from one deal to another.
The FSA warn that this group of people qualify for having two or more of the high-risk factors they have drawn up for people who borrowed during a time when property prices were on the increase.
The criteria outlined for meeting these high-risk factors are people that put down a deposit of 10 per cent or less on a home, those who took out a mortgage for 25 years or longer, or people borrowing more than 3.5 times their annual salary. The FSA have identified around 150,000 borrowers who share all three of these factors and have advised that these are the people most at risk of having their homes reclaimed.
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