'Foolish' mortgage charges are forcing borrowers further into arrears, warns Lord Myners

Published 07th Jul 2009

Struggling homeowners are being pushed further into loan arrears by punitive charges from lenders, Lord Myners warned today.

The City Minister called for the Financial Services Authority to look into the excessive charges being levied against borrowers who fall behind with their repayments.

Banks and building societies were 'foolish' to charge high fees to people already struggling, he told the Treasury Select Committee.

The committee heard that lenders often charged £50 a month to people who were in mortgage arrears, with some charging as much as £150 for a visit by a debt counsellor, or £300 for instructing solicitors.

Lord Myners said: 'There is a risk that charges could be excessive and the FSA does need to give that serious attention in the work that it is doing.'

A failure by banks to price their products properly had been partly responsible for the credit crunch, he added.

'Banks lost the ability to make good and efficient judgments about pricing and risk, and that was one of the causes of the global problem,' Lord Myners told the committee.

'In the past the banking industry allowed itself to be seduced into poor pricing and we are now seeing that corrected.'

MPs also heard Housing Minister John Healey defend the the Government's £285million Mortgage Rescue Scheme after it helped just six families in six months.

The scheme, launched in January, enables homeowners who cannot keep up with their mortgage to sell some or all of their home to a registered social landlord and rent it back again.

It has come in for heavy criticism after figures published last week showed only six households had so far benefited.

Mr Healey insisted its critics were 'looking through the wrong end of the telescope'.

He said: 'It's only part of the picture and simply looking at the numbers at the end of the scheme is to miss its importance early on.'

More than 5,000 struggling households which had received advice from local authorities through the scheme, and 202 had now been through the scheme's full assessment, with 26 receiving a formal offer for help.

The Mortgage Rescue Scheme was only one of a number of Government initiatives in place to help homeowners, Mr Healey said.

Under these, around 200,000 people a month get support for mortgage interest, while 34,000 have received free advice and representation in court when they face losing their home, he said.

Source: ' Daily Mail '

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