A recent court ruling may reset the point in the past at which lenders can pursue defaulting customers for lost interest, according to a Council of Mortgage Lenders (CML) internal memo seen by Mortgage Solutions, writes Paul Robertson.
At present, lenders will start pursuing for shortfall in interest payments from the point of sale of the possessed property, but the CML believes that this may be moved forward to the date of default, after three months.
However, the email cited a recent court case involving three lenders including Halifax and Bristol & West, which concerned the shortfall in interest paid after repossession and what are reasonable timescales for a lender to begin pursuing the defaulter. The case concluded that lenders had 12 years to pursue capital and six to pursue interest. Lenders currently voluntarily confine themselves to six years for both capital and interest.
The CML is concerned that lenders could ‘prejudice their own potential to recover debt by showing leniency in the early stages of arrears.’ It may deter lenders from seeking to help the borrower to find a solution to short-term payment problems, particularly in a period of rising repossessions.
Edward Goldsmith, partner with solicitors Goldsmith Williams, said: ‘Six years is a long time. At the end of the day, how long do lenders need to chase up arrears? I would not be terribly sympathetic if they had not managed to take action in this time. I would ask how long does it take to work out the borrower is in permanent default and then to take the appropriate action?’
A spokesperson for the Halifax said: ‘The cause of action will be on a case-by-case basis. This is all quite fresh and we are still reviewing what it means, but we are pleased to have some clarity in limitations.’