Debt advice organisations have criticised mortgage lenders for the administration fees charged to home owners who fall behind with their repayments.
Many customers receive charges of between £20 and £50 each month that they are in arrears, which lenders say reflect the additional work involved and costs they incur as a result.
Experts have warned that these charges may push vulnerable people closer towards repossession, and have asked for the penalties to be reviewed.
Many lenders have administration charges listed in their terms and conditions, and levy charges of £20 per month upwards when payments are missed.
Debt advice companies have reported that often it is the management of the borrower’s unsecured debts that reduces their available income to repay mortgages, which then lands them in trouble.
Professional debt help companies can assist with this by negotiating a repayment plan which reschedules balances to more realistic levels.
Their free and specialist solutions can help to alleviate problems, by ensuring that there is enough money to cover secured priority payments – like mortgages, secured loans, utility bills and council tax.
Some popular debt help solutions include debt management plans and IVAs (Individual Voluntary Arrangements).
These help to regain control of finances whilst still repaying balances. An IVA requires the assistance of a qualified insolvency practitioner, who will offer free IVA advice.
The insolvency practitioner will also usually provide IVA help and support throughout the IVA term – usually five years. After the IVA is complete, all unsecured balances are written off and the client is debt free.
Debt management is a less formal arrangement than an IVA, and is often referred to as a flexible debt help solution. This is because payments can be altered to suit the changing financial circumstances of the client – if they lose their job or if they receive a pay rise or promotion.
Some of the reputable companies calling for the review to help people struggling with their mortgages include The Debt People, Chiltern Debt Management and Hamilton Locke. These established organisations all offer professional and free debt advice to people who have fallen behind with their payments, and can provide a number of repayment programmes to alleviate financial issues.
The Financial Services Authority is looking into all lender’s arrears charges and expects to announce its findings in spring 2009.
