Mortgage Arrears and Repossession: What MCOB 13 and the Courts Require

Arrears and repossession are where CeMAP® 2 meets the law of mortgages. MRT2 LO4, "Understand the implications of the non-payment of mortgages and other breaches of the mortgage deed", has five criteria (AC4.1–4.5), and LO5, on the lender's legal rights and remedies, has three (AC5.1–5.3). ASEW AC3.5 then tests the same MCOB 13 rules inside CeMAP 3 case studies, and AC5.3 adds state support. MCOB 13 applies across the UK, but the court process differs: England and Wales follow the Pre-action Protocol, and Scotland has its own statutes. For the module overview, see the CeMAP 2 (MORT) hub; for the unit, the MRT2 unit guide.

Arrears at a glance	Rule or fact
Lender's duty	MCOB 13.3: deal fairly; repossession a last resort
Information	Within 15 business days of arrears: MoneyHelper sheet, missed payments, charges, balance
Court process	England and Wales: Pre-action Protocol. Scotland: 1970 and 2010 Acts
Shortfall	Lender must notify intent to recover within 6 years of sale (5 in Scotland)
State help	Support for Mortgage Interest, a loan; Breathing Space, 60 days

Source for the criteria: the CeMAP qualification specification, Appendices 4 and 5.

What are mortgage arrears?

Mortgage arrears are contractual monthly payments that a borrower has missed, in full or in part, under a mortgage. One missed £1,000 payment means £1,000 of arrears. MRT2 AC4.1 to AC4.5 cover what follows: warnings, options, the rules, end-of-term shortfalls and advice.

Non-payment is the most common breach of the mortgage deed, but not the only one. MRT2 LO4 also covers "other breaches", such as letting the property without consent, failing to insure it, or making alterations that damage the security. Any breach can give the lender rights under the deed.

AC4.1 asks about the "mortgage warning": what it contains, when it is issued and how the lender makes sure it is understood. In practice that covers two moments. Before borrowing, every customer is warned that the home may be repossessed if they do not keep up the payments. Once payments are missed, the lender must send the arrears information MCOB 13 requires, in plain terms, and tell the customer where to get free debt advice.

Arrears also grow in a way that matters for questions. Interest continues on the full balance, arrears charges may be added if they are fair under MCOB 12, and unpaid arrears can be capitalised later. The sooner the customer engages, the more options there are.

Key fact: Arrears are the missed payments, not the whole mortgage debt. A lender acts on the arrears; repossession then recovers the whole debt.

What must a lender do under MCOB 13?

MCOB 13 requires a lender to deal fairly with any customer who has, or may have, payment difficulties, to try to agree an arrangement, and to repossess only as a last resort. Within 15 business days of arrears it must send set information.

The core duties, as they stand on the FCA Handbook, MCOB 13, on 30 October 2026:

1. Fair treatment. Deal fairly with customers in, or at risk of, payment difficulty (MCOB 13.3). Changes from PS24/2 took effect on 4 November 2024.
2. Forbearance. Consider the options in MCOB 13.3.4AR: extending the term, changing the mortgage type, deferring or waiving capital or interest, reducing the rate or using simple interest, capitalising arrears, and government schemes.
3. Capitalisation. Never automatic where it is material. It is material if it adds £50 or more to the interest over the term, or £1 or more to the monthly payment.
4. Information. Within 15 business days of arrears arising (MCOB 13.4.1R): the MoneyHelper information sheet, the missed payments, the shortfall, the charges and the balance. Then statements at least every quarter while arrears continue.
5. Signposting. Point the customer to free debt advice, and explain the credit-file impact of each option.
6. Collection limits. No more than two direct debit attempts a month, and contact at reasonable hours.
7. Records. Keep records of dealings, including call recordings, for 3 years.

Arrears charges fall under MCOB 12, which requires them to be fair and not excessive. Our MCOB rules guide shows where MCOB 13 sits among the other chapters.

Exam tip: MCOB 13 protects customers who "may have" payment difficulties, so forbearance can start before the first payment is missed.

What options does a borrower in arrears have?

A borrower in arrears can agree a repayment arrangement, a term extension, temporary interest-only, a deferral or a rate cut, can sell voluntarily, or can seek debt advice and a 60-day Breathing Space. MRT2 AC4.2 and AC4.5 test which option fits.

Option	Effect	When it fits
Arrangement to clear arrears	Normal payment plus an extra amount until arrears clear	Short-term problem, income now restored
Term extension	Lower monthly payment, more interest overall	Long-term reduction in income, term room before retirement
Temporary interest-only	Payment falls to interest only for an agreed period	Temporary drop in income
Payment deferral	Payments paused or reduced for a period	Short, defined crisis, such as illness
Capitalisation	Arrears added to the balance	Income restored; arrears cannot be cleared quickly
Voluntary sale	Home sold, debt cleared from proceeds	Mortgage no longer sustainable

AC4.5 asks how to advise borrowers in arrears "who have differing attitudes to risk". A cautious customer may prefer a longer term with a lower, certain payment; another may prefer a short-term arrangement and a faster return to normal. The adviser's job is to match the option to the circumstances and to refer to specialist debt advice when debts go beyond the mortgage.

The Mortgage Charter and Breathing Space

The Mortgage Charter, agreed in June 2023, is a voluntary commitment by the main lenders, not an FCA rule. Signatories agreed not to force a borrower to leave home without consent within 12 months of the first missed payment, except in exceptional circumstances, and to let up-to-date borrowers move to interest-only for six months, or extend the term with the option to revert within six months, without a new affordability check.

Breathing Space, in force since 4 May 2021, gives up to 60 days' protection from most creditor action and freezes most interest and charges on qualifying debts. Mortgage arrears that exist when it starts are covered, but the borrower must keep paying the ongoing mortgage payments, according to the gov.uk Breathing Space guidance.

Key fact: Breathing Space protects existing mortgage arrears but not new ones. Ongoing mortgage payments must continue.

How does repossession work in England and Wales?

Repossession in England and Wales follows the Pre-action Protocol: the lender must try to agree a way forward before going to court, and the court decides whether to make a possession order. It is the last resort among the MRT2 AC5.2 remedies.

The usual steps are:

1. Arrears and contact. The lender sends the MCOB 13 information and offers forbearance.
2. Pre-action steps. Under the Pre-action Protocol, the lender gives details of the arrears, considers reasonable payment proposals and gives reasons within 10 business days if it refuses one. It must give 15 business days' warning before starting proceedings after a broken agreement.
3. Postponement. The lender should postpone court action if the borrower has a pending claim for Support for Mortgage Interest or mortgage payment protection insurance, or is genuinely marketing the property for sale.
4. The claim. The lender issues a possession claim in the county court and a hearing date is set.
5. The hearing. The court can adjourn, make a suspended possession order (possession only if the borrower breaks set payment terms), or make an outright order with a date for possession.
6. Eviction. If the borrower does not leave, an enforcement officer carries out the eviction.
7. Sale. The lender sells, taking reasonable care to obtain the best price reasonably obtainable, and applies the proceeds to the debt.

The other remedies in AC5.2

Possession and sale are not the only remedies. A lender can sue on the borrower's personal promise to pay, appoint a receiver to collect rent (common with buy-to-let), or, in theory, seek foreclosure, which courts now almost never grant. MCOB 13 governs how a lender uses any of them on a regulated mortgage, which is AC5.3.

Exam tip: A suspended possession order lets the borrower stay while they keep to the terms. It is the court's middle option, and questions test it.

How does repossession work in Scotland?

Repossession in Scotland starts with a calling-up notice or notice of default under the Conveyancing and Feudal Reform (Scotland) Act 1970. Since 30 September 2010 the Home Owner and Debtor Protection (Scotland) Act 2010 has required a court warrant for homes.

Scotland uses different terms. The security is a standard security, not a legal charge, and court orders are decrees. ASEW AC6.4 (the Scotland route) names the Mortgage Rights (Scotland) Act 2001, which first let borrowers and other residents ask the court to suspend a lender's enforcement. Its main provisions were repealed on 30 September 2010 and replaced by the Home Owner and Debtor Protection (Scotland) Act 2010. Older study material may still describe the 2001 Act as current.

The 2010 Act made three changes that matter for CeMAP:

1. Court warrant. Over residential property, the lender can exercise its rights of sale and possession only with a court warrant, or where the borrower has given up the home voluntarily.
2. Pre-action requirements. Before applying, the lender must give clear information about the security and the arrears, make reasonable efforts to agree future payments, not apply while the borrower is taking steps likely to clear the arrears, signpost debt advice, and encourage the borrower to contact the local authority.
3. Residents' rights. Entitled residents, such as a spouse or civil partner, can apply to the court too.

The shortfall rule also differs: a lender must tell the borrower within 5 years of the sale, not 6, if it intends to recover a shortfall. Our ASEW vs ASSC guide covers the Scottish route of CeMAP 3 in full.

Key fact: In Scotland the security is a standard security, the demand is a calling-up notice, and since 30 September 2010 a residential repossession needs a court warrant.

What happens to a shortfall after a sale?

A shortfall is the debt left when a repossessed home sells for less than the mortgage, arrears, interest and costs. The borrower still owes it, and under MCOB 13.6.4R the lender must give notice within 6 years of sale (5 in Scotland) to recover it.

Worked example: a shortfall and a surplus

A lender sells a repossessed home for £180,000. Our own illustrative figures.

1. Sale costs, legal costs and agent's fees: £6,000.
2. Mortgage balance, arrears and interest: £192,000.
3. Total owed to the first lender: £192,000 + £6,000 = £198,000.
4. Shortfall: £198,000 − £180,000 = £18,000, still owed by the borrower.

If the same home had sold for £215,000, the first lender would take £198,000, a second charge lender would be paid next, and any surplus would go to the borrower.

Subrogation (MRT2 AC5.1)

If the loan carried a higher lending charge, the lender's insurer may pay the lender's loss. Under subrogation, the insurer then steps into the lender's shoes and can pursue the borrower for the money it paid out. The borrower paid for the policy, but it protected the lender, so the borrower does not escape the debt. Our loan to value guide explains how the higher lending charge works.

A borrower who thinks a lender has handled arrears or a sale unfairly can complain, and then go to the Financial Ombudsman Service; our FSCS and FOS guide covers the time limits.

Exam tip: Subrogation means the insurer, not the lender, may chase the borrower for the shortfall it paid. The borrower still owes the money.

What state support is there for mortgage payments?

The main state support for mortgage payments is Support for Mortgage Interest (SMI), a loan paying interest on up to £200,000 of the mortgage direct to the lender. On Universal Credit it starts after a 3-month wait. ASEW AC5.3 tests it.

SMI feature	Value as of 30 October 2026
Form	A loan, not a grant, repaid with interest on sale or transfer of the home
Waiting period	Universal Credit: 3 months in a row. Income-based ESA: 39 weeks. Pension Credit: none
Capital limit	£200,000 (£100,000 for Pension Credit)
Standard rate of help	3.66%
Interest charged on the SMI loan	4.5%
What it covers	Interest only, paid direct to the lender; not capital, arrears or insurance

Source: gov.uk Support for Mortgage Interest. The standard rate follows the Bank of England's average mortgage rate data, not Bank Rate.

Because SMI is limited, waits before it starts and covers interest only, private protection is the usual answer for borrowers who cannot afford a gap in income. Mortgage payment protection, income protection and life cover belong to ASEW LO5 and are explained on our mortgage protection guide.

Key fact: SMI is a loan, not a benefit. It pays interest only, after a 3-month wait on Universal Credit, and never clears arrears.

What happens if the capital is not repaid at the end of the term?

If the capital is not repaid at the end of the term, the full balance is due and the borrower is in breach. MRT2 AC4.4 tests this, mostly for interest-only borrowers. Since 22 July 2025 MCOB 13.3.8AR requires fair treatment of expired-term customers.

An interest-only mortgage needs a credible repayment strategy from the start under MCOB 11.6.41R, and the lender must review it at least once during the term. If the strategy falls short, such as an endowment or investment that has underperformed, the customer faces a capital shortfall when the term ends. The options include:

• extending the term, if affordable and the customer is not yet too old;
• switching some or all of the loan to repayment;
• a retirement interest-only (RIO) mortgage, which needs only interest payments until death or a move into long-term care;
• a lifetime mortgage, through an adviser with an equity release qualification;
• selling and moving somewhere cheaper.

For the lender, an expired term with capital outstanding is a credit risk and, under MCOB 13.3.8AR, it must not repossess unless all other options have failed. Our types of mortgages guide explains the repayment methods, and our equity release guide compares RIO with lifetime mortgages.

Exam tip: For an expired-term interest-only customer, the answer is rarely "repossess". Look for the option that keeps them in the home affordably.

Your mortgage arrears and remedies study plan

Your mortgage arrears and remedies study plan takes about 8 hours over a week: learn the MCOB 13 duties and time limits first, then the England and Wales and Scotland court steps, then shortfalls, subrogation and SMI, ending with a timed 40-question MRT2 mock.

Step	Focus	Practice
1	MCOB 13 duties, the 15-business-day rule, forbearance options	MRT2 arrears drill
2	Pre-action Protocol and the Scottish 2010 Act	Write each process as numbered steps
3	Remedies, shortfalls, subrogation	MRT2 remedies drill
4	SMI, Breathing Space, expired terms	Redo the shortfall example with new figures
5	Timed check	Free MRT2 mock 1

Start with the free MRT2 diagnostic, 20 questions in 30 minutes, to see how much of this you already know. Our free study notes summarise the time limits for revision.

Mocks 2 to 10 and the topic drills are part of Pro: £6.99 a week, £11.99 a month or £22.99 for three months, for all five units. Our readiness rule is three mocks in a row at 85% or more, with every topic at 80% or more. It is a guide, and there is no pass guarantee.