Proposed Pre-Action Protocol for Mortgage Arrears

Given the current economic climate, it might be argued that a proposal to introduce a pre-action protocol on mortgage arrears is timely.  The question that needs to be asked however is how would such a pre-action protocol impact upon a lender’s ability to seek relief and exercise its power under the Law of Property Act to regain possession of the property. 

The overarching aim of the draft protocol is to ensure that lenders deal fairly with borrowers in arrears.  If implemented, courts would take compliance (or not) with the protocol into account in dealing with the parties. 

The protocol covers four stages in the process ranging from: 

• the initial contact with the borrower 
• the period after any statutory notices 
• any appropriate alternative dispute resolution, and 
• the court proceedings themselves. 

The protocol proposes that the overriding principles are one of fairness to borrowers and that repossession should be seen as a last resort.

The feedback from the Council of Mortgage Lender’s members (who account for about 98% of residential mortgage lending in the UK) is that it is concerned about a number of the provisions, in particular the prospective limitation upon the right of the lender to seek possession of the mortgaged property.  The main issue that arises is the prospect of the pre-action protocol interfering with the right to exercise the power of sale following the right to seek possession of the mortgaged property.

It should be said that the Council of Mortgage Lenders broadly welcomes the pre-action protocol but commented that the Civil Justice Council should ensure that the proposals should not conflict with the lenders’ existing rights and should not go beyond existing requirements.  The response of all consultees is now being reviewed by the Civil Justice Council.  Watch this space!

For further information contact Nigel Pepper on 01785 211411.

10 October 2008

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published.  Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances