The British Bankers’ Association (BBA) is introducing a new banking code in April that will push lenders to take action to help borrowers who could be running into difficulties when it comes to repaying their mortgage.

Although it is not expecting a great fall in house prices, the Royal Institution of Chartered Surveyors (RICS) is already predicting home repossessions will rise from 30,000 to 45,000. That’s an average of 123 repossessions per day for 2008.

The growth in non-conforming lending has also been blamed for a rise in repossessions. Citizens Advice, which dealt with over 57,000 problems about mortgage, secured loans and other debts in 2007, claims that last year non-conforming lenders were responsible for a level of possession actions substantially above their market share.  

Advisers are normally the last to know when a borrower is having problems paying their home loan as preventing repossession is not the traditional role of a mortgage adviser. 

The problem for many brokers is that by the time a client defaults on a mortgage repayment, their financial situation has hit rock bottom and it could be too late to offer any sort of help that could get their client out of trouble.

The new code, which will see lenders start contacting thousands of borrowers they believe could default on their mortgage payments, aims to minimise the number of home repossessions in 2008.

Currently, it is the borrower’s responsibility to contact the lender if they feel they are at risk of mortgage defaulting. However, the code will encourage more pre-emptive strikes from lenders.

Under the previous code, banks had to deal with people sympathetically but it was the customers that had to come to the banks if and when they got into difficulty.

The new guidance is intended to help prevent a large rise in the number of borrowers falling into debt on their mortgages following higher interest rates and the credit crunch, which is already making an impact on UK consumers.

Banks closely monitor borrowers’ reliability when it comes to making loan repayments. If they spot any sign that the borrower is finding it harder to meet their obligations, they will have to contact them to try to resolve the issue.

The BBA said banks could look for triggers such as a customer’s bouncing cheques for utility bills, missing personal loan repayments, falling further into their overdrafts or trying to take out more loans and credit cards.

Lenders could help borrowers work out a debt management plan to restructure their finances by making sure all the customer’s direct debits come out of their account shortly after their monthly salary was paid.

Admitting you can’t pay your mortgage to someone you know is hard enough, let alone admitting it to an adviser or your bank. When a client is given a mortgage offer, they are made aware of the importance of keeping up their repayments as well as letting the lender know immediately if their circumstances change.

However, many people don’t keep in contact either out of embarrassment or because they don’t think it’s important. With the new code, it will be more important to keep your details up-to-date and could mean a little extra help when you need it. The bottom line is, you pay a lot to your bank for them to look out for you and you should take advantage of what they can and should offer you as help if you are in debt.

The author of this article is Heather Ale, who draws on extensive journalistic experience to write on specialist finance matters.  She has worked across the world and is a leading writer in her field.

This article does not represent ‘financial advice’ as each person's individual requirements will be unique to their specific needs. If there is something in the article which you wish to rely on, please check those details with the person/company with whom you arrange financial services such as debt management plans, IVAs or debt consolidation loans.

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