Arrears and breaches: warnings, forbearance, MCOB 13 and capital shortfalls

Arrears happen when payments due under the mortgage are not made in full. Other breaches of the mortgage deed are also possible, for example letting the property without consent, failing to insure it or making alterations without permission. CeMAP® MRT2 Learning Outcome 4 covers the warnings the borrower receives, the options open to both sides, the MCOB 13 rules on treating borrowers fairly, what happens when an interest-only loan reaches its end date unpaid, and how advice changes with the borrower's attitude to risk. The rules quoted below are those in force on 30 October 2026, including the changes made by PS24/2 (in force 4 November 2024) and the expired-term rule added on 22 July 2025.

Key definitions

Term	Meaning
Payment shortfall	A payment due has not been paid in full. MCOB 13 also covers customers who may have payment difficulties.
Arrears	A payment shortfall that has reached the level defined as arrears in the FCA Glossary. The MCOB 13.4 information duties apply once a customer "falls into arrears".
Forbearance	A concession that helps a struggling borrower, for example a reduced payment or a term extension.
Capitalisation	Adding the arrears to the loan balance so they are repaid over the remaining term.
Sale shortfall	The debt left after a repossessed property is sold for less than is owed.