Homeowners are being cautioned that documents promoted online which may seem like a “golden ticket” to eliminate their debts are actually worthless pledges that could worsen their financial troubles. Certain assertions are being circulated online suggesting borrowers can dodge paying their mortgage by dispatching a “promissory note” to their lender, the Financial Conduct Authority (FCA) said.
These documents purport that another entity, such as a trust, will either provide funds to cover mortgage payments, or maintain the note itself ought to be recognised by the lender to settle the mortgage completely. Homeowners submitting these notes are frequently experiencing financial hardship and are purchasing them hoping it will resolve their difficulties.
Some people may find themselves spending hundreds of pounds. The watchdog explained that a promissory note is not a valid method of mortgage payment and dispatching one to a lender does not mean the borrower is no longer obligated to repay 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 period is frequently when people’s financial difficulties reach breaking point, which may render certain offers appearing to be “quick fixes” to eliminate debts especially 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 the notes risk worsening their circumstances as they may end up paying “significant sums of money, £500 or more, for something that is worthless” while “they’re not engaging proactively with their lender, who could actually help them make their situation better”. Financial institutions 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 caution regarding fraudulent claims about legal loopholes and false information suggesting individuals cannot be held responsible for their debts. The regulator has previously cautioned about assertions which may utilise arguments tracing back to the Magna Carta, which individuals may attempt to apply to various forms of debt or taxation.
Mr Sachrajda said: “These are examples of people paying money for services that don’t work and don’t improve their position.”
He explained that online disinformation surrounding mortgages can result in “real harm for mortgage borrowers, often vulnerable people who are struggling with their mortgage repayments”.
Mr Sachrajda continued: “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 complementary 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 assist people who are facing financial difficulties. The Financial Ombudsman Service (FOS) has dealt with instances where individuals have been sold promissory notes related to mortgage payments, and it has not supported cases based on such claims.
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.”
