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FCA report reveals rise in early arrears among mortgage borrowers

The proportion of mortgage borrowers slipping into arrears inside six months of their loan has risen by around a fifth, the Financial Conduct Authority’s (FCA) annual report reveals.

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Approximately 0.3 percent fell behind on their repayments, up from 0.25 percent the year before, according to the regulator’s figures. While the portion of consumers falling into arrears early on is small – around three in every thousand – it suggests the deals may have been unsuitable for the customers.


In 0.17 percent of cases, customers fell into arrears in the second month of the mortgage, a failure rate that “could be an indicator of an unsuitable or unaffordable product having been sold”, the FCA said.


The FCA said it recognised that missed payments can be caused by macroeconomic changes like employment trends.


“As such, they will not always indicate unaffordable or unsuitable lending,” it added. “Arrears data can provide a useful indicator of consumer outcomes, and can prompt us to investigate further, either at a firm level or a sector level.”


The regulator said it expects firms to “undertake an appropriate assessment of consumers’ creditworthiness, including affordability”. This, it said, helps “minimise the risk of consumers taking on unaffordable debt which can lead to financial distress”.


“This may happen if the customer is unable to repay debt, or can only repay by suffering wider negative effects, such as having to cut back on essential spending or defaulting on other commitments,” it said. “In extreme cases this can lead to bankruptcy, harm consumers’ mental health or have wider social implications.”


“Missed payments can have a negative effect on credit scores and make it more difficult for consumers to get appropriate credit products. Missed payments and arrears can also be an indication of an unsuitable product that does not meet the consumer’s needs.”


Away from mortgages, the FCA gave an update on its work on preparing for the UK’s withdrawal from the EU.


“The resource we have devoted to this work is, and will continue to be, considerable,” said chief executive Andrew Bailey. “As well as providing ongoing technical assistance to the government, we have worked with firms to understand their future operation plans and their impact, worked on the design of the proposed temporary permissions regime for European Economic Area firms currently operating in the UK and continued our close cooperation with the European Supervisory Authorities.”

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