The Financial Conduct Authority (FCA) has issued a warning about promissory notes which claim to be a “golden ticket” to clear mortgage debts, but are in reality an empty promise
Mortgage holders are being cautioned about online offers that seem like a “golden ticket” to clear their debts but could actually exacerbate their financial woes. The Financial Conduct Authority (FCA) has highlighted claims circulating online suggesting borrowers can dodge their mortgage payments by sending their lender a “promissory note”.
These notes purport that another entity, such as a trust, will either provide funds for mortgage repayments, or assert that the note itself should be accepted by the lender as full repayment of the mortgage. Often, those resorting to these notes are in financial straits and pay for them hoping it will resolve their issues.
Some may end up shelling out hundreds of pounds. The regulator clarified that a promissory note is not a valid form of mortgage payment and sending one to a lender does not absolve the customer from repaying their mortgage.
Greg Sachrajda, head of department in retail banking market interventions at the FCA, said: “We have had a number of lenders reporting increasing numbers of borrowers trying to use these promissory notes to clear the mortgages.”
The festive season is typically a period when financial troubles come to the fore, which might make certain offers appearing to be “quick fixes” to clear debts particularly appealing.
Mr Sachrajda explained: “People are sold a service claiming you can send a lender a promissory note and this will somehow clear their mortgage. It doesn’t. These promissory notes are just an empty promise that someone else will repay the mortgage, they don’t actually make any payments.
“Lenders are rightly rejecting those promissory notes. Now, this can seem like a golden ticket for borrowers who are really struggling, essentially a free pass into a world where they’ve become debt-free.
“But, of course, it isn’t a free pass. If you’ve borrowed money, you have to repay it. We often say if something seems too good to be true, it usually is, and that’s certainly true of these promissory notes.”
He warned that those using these notes risk worsening their predicament, as they may end up spending “significant sums of money, £500 or more, for something that is worthless” whilst “they’re not engaging proactively with their lender, who could actually help them make their situation better”.
Mortgage providers will send back the notes along with any accompanying paperwork to the borrower, frequently directing them towards legitimate forms of mortgage repayment.
Mr Sachrajda added: “Lenders are required to treat borrowers in financial difficulty sensitively and fairly and, if appropriate, they can explore options with them like extending the term of the loan, temporarily switching to an interest-only mortgage, or agreeing a payment holiday.
“Even if selling the house ends up being the right next step because the borrower really can’t repay the mortgage in any other way, the bank can still help them with something called an assisted voluntary sale, which gives the borrower more time to sell the property, and the bank can help with the costs and the sales process.”
Earlier this year, the FCA issued a warning about bogus claims regarding legal loopholes and false information suggesting people cannot be held responsible for their debts. The regulator has previously cautioned about assertions which may employ arguments harking back to the Magna Carta, which individuals may try to apply to various forms of debt or taxes.
Mr Sachrajda said: “These are examples of people paying money for services that don’t work and don’t improve their position.”
He said that online misinformation surrounding mortgages can result in “real harm for mortgage borrowers, often vulnerable people who are struggling with their mortgage repayments”.
Mr Sachrajda added: “Our advice to mortgage borrowers is don’t waste your money on useless promissory notes.”
He explained that people should instead contact their lender, who can provide “real options that can help”, and they should also consider seeking free assistance from a debt support charity.
Organisations such as the National Debtline which is run by the Money Advice Trust, StepChange, Citizens Advice and MoneyHelper can help people who are struggling financially. The Financial Ombudsman Service (FOS) has dealt with cases where people have been sold promissory notes related to mortgage payments, and it has not supported claims based on such arguments.
A spokesperson for the FOS said: “A mortgage is likely to be the most significant loan a home buyer is ever going to acquire, which is why it is crucial that consumers understand what their mortgage means for their finances. Mortgage borrowers – particularly those in financial difficulty – may be targeted by websites and companies offering quick fixes, such as promissory notes.
“These notes do not clear a mortgage or replace the need to make payments. Relying on a promissory note to stop making payments puts your home at risk of repossession.
“If you’re having any problems with your mortgage, always speak to your mortgage lender first. If people don’t feel they’ve been treated fairly by their broker or mortgage provider, they should contact our free, independent service and we’ll see if we can help.”
Karina Hutchins, head of mortgage policy at UK Finance, said: “Promissory notes are not a valid way to pay your mortgage. Borrowers who send these documents will still need to make their payments and repay their mortgage.
“Not doing so risks worsening their financial situation. If you are struggling, speak directly to your lender about the support available, and consider seeking free, independent debt advice.”
