Millions of homeowners will be given greater protection against the threat of punitive charges for going into arrears.
The Financial Services Authority yesterday issued lenders with tough new rules ensuring that borrowers who miss a mortgage payment will no longer have to pay fees of up to £115 a month if they have already agreed to a repayment plan.
It also said that payments by customers in difficulty must go towards clearing their debt first, rather than to arrears charges, which can be paid later.
The regulations come amid fears of a surge in the number of homeowners falling behind with their mortgages as the economy is battered by the severe tightening of public spending.
The Consumer Credit Counselling Service said that it expected a 20 per cent increase in inquiries about mortgage arrears from clients over the next 12 months.
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About 102,000 homeowners missed three to six months’ worth of mortgage payments in the first three months of 2010, according to the Council of Mortgage Lenders.
The new FSA rules, which come into effect on Wednesday, will also require all firms to record telephone calls relating to arrears and keep records for three years.
Additionally, all mortgage advisers and sales staff will be required to demonstrate that they are “fit and proper”, in order to help the regulator clamp down on mortgage fraud.
The FSA has promised to return to the issue of arrears charges in the next stage of its plan to overhaul the way that the mortgage market is regulated, with the results of a wide-ranging consultation due next month.
Over the past year it has levied multimillion-pound charges on Kensington and GMAC-RFC, both specialist sub-prime lenders, for charging excessive fees to customers who were struggling to meet their repayments. The Times recently revealed that up to 30 lenders are also under investigation for breaching rules on arrears charges.
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Sue Edwards, of Citizens Advice, the debt charity, said: “We have long been calling for a ban on arrears charges where customers have repayment plans in place.
“However there is still scope for the FSA to go further. Arrears charges, for those not already in repayment plans, should be a fair reflection of the additional administration costs faced by lenders.”
The FSA has also announced new rules to protect vulnerable homeowners from being exploited by sale and rent back firms after it took over the regulation of the sector last year.
The firms will be banned from cold calling and using high-pressure sales techniques, including the use of emotive terms such as “fast sale”, “mortgage rescue” and “cash quickly”.