Over the periods April to June and July to September, the Ministry of Justice reported mortgage repossessions had risen by 39 per cent and 42 per cent respectively compared to the same quarters in the previous year. In both quarterly updates, the government department said the rise “has been driven by increases seen by one large mortgage provider”.
Lloyds Banking Group confirmed that it was the lender referred to by the MoJ. It said the rise was down to a change in regulation.
A spokesperson for Lloyds Banking Group said: “The reason for the increase in the quarters is the reinstatement of a number of repossession proceedings that had previously been put on hold pending the implementation of regulatory changes.
“These instances happen in a very small proportion of cases and continue to sit at levels that have remained historically low in recent years.
“We only ever consider repossession as a last resort, after our specialist mortgage support team has worked with customers to explore every other possible option.”
Lloyds put its repossession activity on hold while it made changes laid out in guidance document from the Financial Conduct Authority (FCA) about the fair treatment of mortgage customers in arrears and the practice of automatically adding this to the borrower’s main mortgage balance, published in April 2017.
A rule included in the Mortgage Conduct of Business (MCOB) forbade firms from automatically adding arrears to the mortgage balance, therefore collecting the shortfall through the borrower’s regular monthly payment, if the impact on the customer was significant.
However, the regulator found that some firms were automatically adding a borrower’s payment shortfall to the main loan, in some cases inadvertently, where an event such as an interest rate rise triggered monthly repayments to be recalculated.
At the same time, some lenders were treating the arrears as still outstanding and continuing to pursue the payment shortfall balance separately through their collections processes, treating the balances as immediately due and payable.
The regulator estimated approximately 750,000 borrowers could be impacted by the issue but its analysis highlighted the financial impact for most would be in the “low hundreds of pounds”.
Lenders were told to change their systems and refund borrowers if they had been charged arrears management fees when they were no longer in a shortfall.
Becky O’Connor, personal finance specialist at Royal London, said: “Lenders are encouraged to find ways to help people who are finding it difficult to keep up repayments. These figures suggest that for some borrowers, this approach is not enough to keep the roof over their head.”