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Second charge lending complaints up as more customers turn to loans to consolidate debt – FOS

  • 28/06/2022
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Second charge lending complaints up as more customers turn to loans to consolidate debt – FOS
New complaints about unaffordable lending in second charge repayment loans rose eight per cent between 2021 and 2022, The Financial Ombudsman Service has revealed (FOS).

In its annual complaints data, FOS said while it had taken on fewer cases about historic unaffordable lending than in previous years, it had received an increased number of complaints about unaffordable lending relating to second charge repayment loans.

This type of secured loan on a property, usually with a higher interest rate, is provided by a different lender than the main mortgage provider. 

FOS said between April 2021 and March 2022 it had seen more examples of vulnerability, debt and consumers falling behind on payments for a product they could never have afforded, with some loans carrying a 35 per cent interest rate.

The ombudsman said because second charge loans are often taken out to consolidate other debts customers could potentially be more vulnerable.

A spokesperson said: “The interest rate is so high that, even in cases where the consumer recovers and is able to make payments towards the arrears alongside their monthly payment, their loan continues to grow or never reduces.

“Consumers who take out second charge loans may do so out of desperation, as they have other debts they’re struggling to repay. And, bringing it all into the second charge loan with a lower monthly payment might seem like a good idea at the time. But, concerns arise about the original advice and or lending decision, when it’s evident the loan over the long term isn’t sustainable. Often the debts which have been consolidated were unsecured, but now they’re secured on their home it presents a real risk of them losing it.”

The spokesperson added that the FOS had been able to help in several case where tens-of-thousands of pounds worth of loans have been written-off, or where the lender has provided much more tailored forbearance, which has had a positive impact for consumers.


Residential mortgages records over 7,000 new complaints

The latest annual data from FOS showed that 7,649 of new complaints came from residential mortgages. The top three complaint categories in the sector were first charge repayment loans at 4,866, first charge interest-only with no repayment vehicle with 994 new cases and second charge repayment cases third at 606.

After residential mortgages, the highest number of new complaints were about buy-to-let mortgages at 718 and equity release products with 475.

The overall uphold rate for complaints in mortgages was 25 per cent, compared to 21 per cent the previous year

Complaints about customer service accounted for over 35,000 of the total complaints handled by FOS.

Issues ranged from businesses and their customers being unable to find a way forward to resolve an issue, to businesses’ lack of care and attention to detail, which could have prevented complaints escalating earlier.

FOS said it would continue to work closely with the Financial Conduct Authority to ensure a coordinated approach to addressing complaints about lending. It added it already provided a range of resources to help lenders do this, including information its approach to resolving cases, and a database of the ombudsman’s decisions.

Nausicaa Delfas, interim chief executive and chief ombudsman of the Financial Ombudsman Service, said: “Over the past year, the FOS continued to help over 200,000 customers who had problems with financial businesses on issues across banking, lending, insurance and investments. In this period of economic uncertainty it is more important than ever that where problems do arise, they are addressed quickly.  We are here to help to resolve financial disputes fairly and impartially.”

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