Can my lender charge fees for mortgage arrears?

Yes, a lender can charge you fees when your mortgage falls into arrears. Many lenders charge a penalty fee for each missed payment, and they can also charge for the work of managing an account in arrears, including legal costs if the case goes to court¹. What they cannot do is charge more than the cost of dealing with your account, or charge for things they have not actually done³.

The rules that matter most are about fairness, not a fixed price list. The Financial Ombudsman Service, which settles disputes between borrowers and lenders, says it would not normally call a charge too high if it was set out in the lender's tariff of charges and took into account the lender's costs of dealing with accounts in arrears¹. Charges that fail that test, or that punish you for being in difficulty, are the ones that get refunded.

If you miss a payment, your lender will normally write to you within 15 days⁵. The sooner you talk to them, the more options there are: a reduced payment arrangement, a temporary switch to interest-only, a payment holiday, or extending the term⁶. Free, independent help is available from Citizens Advice, Shelter Cymru, National Debtline, StepChange and Housing Rights, and getting advice early can stop arrears turning into a problem that threatens your home⁷.

Arrears fees are allowed, but only to cover the lender's costs

There is no law that caps what a lender can charge when you fall behind. What exists instead is a fairness standard, applied by the Financial Ombudsman Service when a borrower complains. The ombudsman's guidance for lenders sets out when it would not normally intervene: a charge is treated as acceptable if it was set out in the tariff of charges and took into account the lender's costs of dealing with accounts in arrears¹.

That second condition is the one that catches lenders out. Charges that go beyond recovering a cost, or that are levied for work never carried out, are the ones the ombudsman criticises. StepChange, a debt charity, lists the practices it regards as unfair: increasing the interest rate because you have missed payments, continuing to add interest and charges while you are in financial difficulties, adding charges for actions the creditor has not done, and adding charges that are more than the actual cost to the creditor⁴.

Citizens Advice frames the same idea as a set of rules lenders must follow: treat you fairly, do not charge a higher interest rate because you have missed a payment, do not harass you about money if you are in arrears, and only contact you between 9am and 8pm³. Those are the standards to hold a lender to if contact or charges start to feel disproportionate.

The ombudsman has upheld complaints on exactly this ground. In one published case, it concluded that a lender could have done more to help a borrower and that it was not fair to apply arrears charges at all². That is the outcome to aim for if you believe you were charged while a lender was failing to engage with your situation.

What lenders typically charge when you fall behind

Charges vary by lender and by what stage the arrears reach, and there is no single national figure. Many lenders charge penalty fees for each missed payment¹². The amount is set out in the lender's tariff of charges, which you are entitled to ask for.

One historical example shows the shape of these fees: in 2010, Abbey, a Santander brand, increased its monthly charge for mortgage arrears to £40 from £35¹³. That figure is old and should be read as an illustration of how such charges are structured, not as a current market rate. Your own mortgage terms are the only reliable source for what your lender charges.

Beyond the missed payment fee, costs can build in three ways:

• Legal costs. If a lender starts legal action because you are in arrears, it will normally simply add its legal costs to your mortgage debt¹⁴.
• Court costs. If the case reaches court, you will usually have to pay the court costs, which the lender adds to your mortgage account and which you pay along with your arrears¹⁰.
• Lender intervention costs. In shared ownership, any cost the lender incurs in reducing arrears and stopping court proceedings is added to what the shared owner owes¹⁵.

Can my lender add fees to my mortgage balance?

Often, yes, and this is the single most important thing to understand about arrears charges. Adding a fee to the balance is usually allowed, but it converts a one-off cost into a long-term one. As Which? puts it, if you add a fee to your loan, you will pay interest on it for as long as it remains outstanding⁹. The same applies to product or arrangement fees: adding one to the mortgage balance means you pay interest on the fee, costing you far more overall⁶.

The same mechanism is used for the arrears themselves. Lenders may allow you to add your arrears to the total amount you owe and pay them back over the lifetime of the loan, an approach known as capitalising the arrears⁵. Independent Age describes the condition lenders typically attach: if your home is worth more than the mortgage you have, your lender might let you add your arrears to the total amount you owe, repaid over the lifetime of the mortgage¹⁶. Advice NI lists adding arrears to the mortgage balance as one of the standard repayment options⁸.

Capitalising can be a genuine breathing space, because it stops the arrears sitting separately and being chased. It is not free money. You pay interest on the added amount for the rest of the mortgage term, so the total cost of the debt rises. Before agreeing, ask the lender for the revised monthly payment and the revised total payable, so the trade-off is visible in numbers rather than described in words.

How a payment arrangement affects fees

Agreeing an arrangement changes what happens next, but it does not automatically switch charges off. What it does is move the unpaid amount into a different category. Where a lender agrees a reduced payment or interest-only arrangement during illness, the shortfall becomes agreed arrears and can be recorded on the consumer's credit file¹.

The ombudsman's expectation is that fees should stop while an arrangement is being kept to. Its guidance states that lenders should usually waive arrears fees during this time, as long as the customer keeps to any reduced payment arrangement, in situations involving illness, being out of work, or selling the house¹. That is a strong starting position if charges continue to land while you are meeting an agreed plan.

Lenders have a range of arrangements available, and which one you are offered depends on your payment history and whether your difficulties are short or long term. They include reducing your payments for a set period, charging interest only for a while on a repayment mortgage, giving a payment holiday, and extending the mortgage term to reduce payments¹⁷. It may also be possible to negotiate a lower monthly payment by extending the term or switching repayment method¹⁸.

Two practical points. First, some lenders refuse to allow interest-only payments if the mortgage is already in arrears, so that option is not always on the table¹⁹. Second, lenders will sometimes ask you to pay off the arrears over 12 to 24 months, which is worth checking against what you can actually afford before agreeing²⁰.

Challenging arrears charges you think are unfair

Start with the lender's own complaints procedure. Mortgage lenders should respond sympathetically if you fall into arrears, and they should have their own internal complaints procedure¹². Ask for a breakdown of every charge applied to your account, the date it was applied, and the clause or tariff entry it comes from.

Then test each charge against the fairness standard. A charge is likely to stand if it was in the tariff of charges and reflected the lender's costs of dealing with accounts in arrears¹. A charge is worth challenging if it falls into any of these categories:

• Interest or charges added while you were in financial difficulties⁴
• A charge for an action the lender did not actually carry out⁴
• A charge higher than the actual cost to the lender⁴
• A higher interest rate applied because you missed a payment³
• Arrears fees applied while you were keeping to a reduced arrangement during illness, time out of work or while selling¹

If you are in Wales, Shelter Cymru's Welsh-language guidance makes the same point directly: if you think a lender is applying unfair penalty charges, you may want to make a complaint²¹. The route is the same across the UK.

Keep a written record: dates of calls, names, what was agreed, and copies of letters. If the lender does not resolve it, that record becomes the evidence for the next stage.

Complaints: from your lender to the Financial Ombudsman

If the lender will not put things right, the Financial Ombudsman Service can look at the complaint. It is free to use. The ombudsman handles complaints about unfair charges applied to an account, such as arrears fees, legal costs and field agent visit fees; about a lender refusing a concession such as a temporary switch to interest-only or a term extension; about a lender unfairly trying to repossess; about a lender not helping when payments are unaffordable; and about a lender harassing a borrower over arrears¹.

Its scope covers complaints about financial difficulties affecting your ability to repay, including complaints about mortgage arrears and charges, not being able to change or move your mortgage or take a payment holiday, and repossession both before and after it has happened¹¹. It also deals with complaints about early repayment charges where a borrower believes the charge is unfair²².

The process is straightforward. Explain to your lender what you are unhappy about and why; if you are not happy with the response, bring the complaint to the ombudsman with as much information as possible²³. You can go to the ombudsman after complaining to the lender and being unsatisfied, or after eight weeks without a reply²⁴.

What the ombudsman can order matters more than the process. It can tell a lender to adjust the amount you owe, set up a fair repayment arrangement based on your current situation, or in some cases stop seeking repayment from you entirely²⁵. It can order a refund of money, a change to the amount owed, repayment arrangements, or compensation for distress or inconvenience²⁶. Where a lender has not done enough to help, it may tell the lender to pay compensation for distress or inconvenience²⁷, and it may also ask the lender to pay compensation where a borrower experienced distress or inconvenience²⁸.

The ombudsman also hears complaints from guarantors as well as borrowers²⁹, which matters if someone else is on the hook for your mortgage.

Free help with mortgage arrears

Getting help early is the single most useful step. Getting help and advice can stop mortgage arrears or rent arrears turning into a problem that threatens your home⁷. If you are in arrears, let your lender know and get advice as soon as possible to avoid penalty fees for late or missed payments³⁰.

Free, independent services include:

• Citizens Advice, which explains what happens when a lender takes you to court and what happens after a possession hearing¹⁰
• Shelter Cymru, for advice on arrears on a repayment mortgage, dealing with arrears, and changing mortgages¹⁹
• National Debtline, which publishes a guide to mortgage arrears²⁰
• StepChange, a debt charity that helps with mortgages and other debts³³
• Housing Rights, which can represent you at court for free in mortgage debt and social rent arrears cases³⁵
• Advice NI, for housing-related debts in Northern Ireland⁸

If you are faced with repossession, contact your solicitor or a free advice agency³⁶. Where arrears arose because of illness or a medical condition that may stop you working or paying for a period, take a letter from your GP, consultant or medical social worker explaining your condition to any court hearing³⁶. Get your adviser's help to prepare a budget of your income and outgoings, to work out whether you can afford the instalment and the arrears over a period of time³⁶.

One limit worth knowing: Support for Mortgage Interest cannot help you pay missed mortgage payments, meaning mortgage arrears³⁷. It is designed to help with ongoing mortgage interest, not with the backlog.

Most mortgage advisers give advice for free, charging a fee only if you choose to take a financial product they have found for you³⁸. That is separate from debt advice, which is free at the services above.