There is some relief for hard pressed home owners with the introduction of a new pre-action protocol which is designed to encourage lenders and borrowers to enter into a constructive dialogue before proceedings are commenced.

The Protocol describes the behaviour the court will normally expect of the parties prior to the start of a possession claim. Failure on the part of a lender to follow the protocol coud result in costs penalties or could cause the claim to be stayed by the court.

The Protocol requires the lender to respond promptly to any proposal for payment made by the borrower. If the lender does not agree to such a proposal it should give reasons in writing to the borrower within 10 business days of the proposal.

If the lender submits a proposal for payment, the borrower should be given a reasonable period of time in which to consider such proposals. The lender should set out the proposal in sufficient detail to enable the borrower to understand the implications of the proposal.

If the borrower fails to comply with an agreement, the lender should warn the borrower, by giving the borrower 15 business days notice in writing, of its intention to start a possession claim unless the borrower remedies the breach in the agreement.

A lender should consider not starting a possession claim for mortgage arrears where the borrower can demonstrate to the lender that the borrower has –

(1) submitted a claim to an insurer under a mortgage payment protection policy and has provided all the evidence required to process a claim;

(2) a reasonable expectation of eligibility for payment from the insurer; and

(3) an ability to pay a mortgage instalment not covered by the insurance.

If a borrower can demonstrate that reasonable steps have been or will be taken to market the property at an appropriate price in accordance with reasonable professional advice, the lender should consider postponing starting a possession claim. The borrower must continue to take all reasonable steps actively to market the property where the lender has agreed to postpone starting a possession claim.

Where the lender has agreed to postpone starting a possession claim the borrower should provide the lender with a copy of the particulars of sale, the Home Information Pack and (where relevant) details of purchase offers received within a reasonable period of time specified by the lender. The borrower should give the lender details of the estate agent and the conveyancer instructed to deal with the sale. The borrower should also authorise the estate agent and the conveyancer to communicate with the lender about the progress of the sale and the borrower's conduct during the process.
Where the lender decides not to postpone the start of a possession claim it should inform the borrower of the reasons for this decision at least 5 business days before starting proceedings.

The court takes the view that starting a possession claim is usually a last resort and that such a claim should not normally be started when a settlement is still actively being explored. Discussion between the parties may include options such as:

(1) extending the term of the mortgage;
(2) changing the type of a mortgage;
(3) deferring payment of interest due under the mortgage; or
(4) capitalising the arrears.

The lender should consider whether to postpone the start of a possession claim where the borrower has made a genuine complaint to the Financial Ombudsman Service (FOS) about the potential possession claim.

Where a lender does not intend to await the decision of the FOS it should give notice to the borrower with reasons that it intends to start a possession claim at least 5 business days before doing so.