The financial watchdog said it is now considering further regulatory action against lenders whose customers have had a poor experience of mortgage arrears management.
It said many customers in this situation are treated fairly.
But inconsistencies in practices had the potential to cause harm and were identified in the FCA’s review of long-term mortgage arrears and forbearance.
Potential for harm
The review focused on customers with mortgage arrears of more than 12 months and included large retail banks, building societies, non-bank lenders and closed-book lenders.
The FCA found cases in the review sample where lenders had incomplete customer case files, which meant customers had to keep repeating their circumstances.
Vulnerable customers were not always given the appropriate level of support.
In other failings, payment arrangements were not regularly reviewed, and in some cases, customers received inaccurate information.
Firms were also found to repeatedly pursue arrangements to pay when other repayment options could have been more suitable.
And there was not always an end-to-end review of customer experience, with some customers required to fill out detailed forms without support.
Customers harmed by poor practices may struggle to recover from arrears and could ultimately see their home repossessed with reduced equity in their home, the regulator said.
The FCA has provided feedback to firms in the sample.
Customers generally treated fairly
The review comes after the regulator previously found more borrowers have fallen into long-term arrears, as lenders repossess fewer homes.
Under the FCA’s rules, repossession must be considered as a last resort for lenders.
Overall, the regulator concluded customers in these circumstances were generally treated fairly.
However, it stressed that customers in long-term arrears, or who might go into arrears with an increase in interest rates, must be made aware of what actions they should be taking.
Jonathan Davidson, FCA executive director of supervision said: “We know that many customers remain hesitant to contact their lender to discuss their mortgage arrears for a variety of reasons.
“We encourage customers to talk to their lender as early as possible as this may give them more time and options when it comes to the steps they can take.”
Jackie Bennett, director of mortgages at trade body UK Finance, said: “It is encouraging that overall the FCA did not identify widespread harm to customers from extended forbearance.
“The industry acknowledges the regulator’s findings of some inconsistencies in firms’ arrears management practices.
“Anyone with concerns about making their mortgage repayments should contact their lender as soon as possible to discuss the support and options available to them, a message echoed by the FCA.
“UK Finance will continue to engage closely with the regulator, lenders and administrators to deliver fair outcomes for those customers in financial difficulty.”