Arrears, default & post-completion

What should a borrower do first if they realise they may struggle to keep up their mortgage payments?

• A Stop paying without telling anyone
• B Contact the lender as early as possible to discuss the situation and options ✓
• C Immediately put the property up for auction
• D Take out several payday loans

Answer: Early contact with the lender allows options such as payment arrangements to be explored. Lenders are expected to treat customers in difficulty fairly and consider forbearance before any enforcement.

Under MCOB, how should a lender treat a borrower who has fallen into arrears?

• A Repossess immediately without any contact
• B Deal fairly with the customer and treat possession as a last resort after considering alternatives ✓
• C Increase the interest rate as a penalty automatically
• D Refuse all communication

Answer: MCOB requires lenders to deal fairly with customers in arrears and to treat repossession as a last resort, considering forbearance options such as payment plans or term changes first.

Which of the following is an example of forbearance a lender might offer a borrower in difficulty?

• A Demanding the full balance the next day
• B Agreeing a temporary reduced payment arrangement or capitalising arrears ✓
• C Cancelling the borrower's identity
• D Selling the debt to the borrower's employer

Answer: Forbearance measures can include temporary reduced payments, a payment arrangement, extending the term, or capitalising arrears. These aim to help the borrower recover while avoiding repossession where possible.

In England and Wales, what legal step must a lender generally take before it can repossess an owner-occupied property in arrears?

• A It can repossess instantly with no process
• B It must usually obtain a court order, with possession treated as a last resort ✓
• C It must wait exactly ten years
• D It can ask the local council to evict the borrower

Answer: A lender normally needs a court possession order before taking possession of an occupied residential property, and the court considers whether the borrower can remedy the arrears. Possession is a last resort.

If a repossessed property is sold for less than the outstanding debt, what is the remaining amount called?

• A A surplus
• B A shortfall debt that the borrower may still be liable to repay ✓
• C An equity bonus
• D A redemption credit

Answer: Where sale proceeds do not cover the debt, costs and arrears, the remaining balance is a shortfall the borrower may still owe. Any surplus after clearing the debt and costs would instead be returned to the borrower.

What is a 'sale and rent back' arrangement, and why does it require caution?

• A A standard remortgage with no risks
• B Selling the property and renting it back; it is a regulated activity carrying significant risks for the occupier ✓
• C A way to avoid all interest charges
• D A method of porting a mortgage

Answer: Sale and rent back involves selling the home and renting it back, often at below market value, and carries real risks such as losing the property or tenancy. It is regulated, and consumers should seek advice before proceeding.