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New rules being considered to handle mortgage arrears

The Financial Conduct Authority is consulting on new guidance to lenders on how to measure and treat the repayment of arrears by borrowers. 

The authority says some mortgage lenders have automatically ‘rolled up’ customers’ arrears within their future monthly mortgage payments when they are recalculated from time to time, for example when an interest rate changes. 

The FCA says this ‘automatic capitalisation’ may be a breach of its rules and can lead to a customer taking longer to repay their arrears and may lead to incorrect fees being charged in relation to the arrears.


In June 2010 the Financial Services Authority - which the FCA has now replaced - introduced a rule saying that firms must not automatically capitalise a payment shortfall when there would be a significant impact on the borrower.

The purpose of the rule is to stop automatic capitalisations without consideration of customers’ individual circumstances. Capitalisation is permitted in some circumstances but only with the customer’s agreement.

The authority suspects around 750,000 customers may have their arrears treated this way.

Due to the Bank of England base rate change in August this number may now be greater as the rate change may have led to further recalculation of some customers’ mortgage payments.

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