Mortgage holders warned of ’empty promise’ notes claiming they can clear loans

Mortgage holders are being warned that notes offered online that may appear to be a “golden ticket” to clear their debts are in reality an empty promise which could make their financial problems worse.

Some claims are being made online that borrowers can avoid paying their mortgage by sending their lender a “promissory note”, the Financial Conduct Authority (FCA) said.

The notes claim another party, such as a trust, will either make money available to make mortgage repayments, or claim the note itself should be accepted by the lender to repay the mortgage in full.

Borrowers sending in the notes are often in financial difficulties and are paying for them in the hope it will solve their problems. Some people may end up spending hundreds of pounds.

The regulator said a promissory note is not an acceptable form of mortgage payment – and if one is sent to a lender that does not mean the customer no longer has 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.”

Christmas is often a time when people’s financial problems come to a head, which may make some offers which appear to be “quick fixes” to clear debts particularly attractive.

Mr Sachrajda said: “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 said people using the notes can risk making their situation worse as they may be paying “significant sums of money, £500 or more, for something that is worthless” and “they’re not engaging proactively with their lender, who could actually help them make their situation better”.

Lenders will return the notes and any other documents to the borrower, often signposting them to acceptable types of mortgage repayment.

Mr Sachrajda said: “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 fake claims about legal loopholes and misinformation claiming people cannot be held liable for their debts.

The regulator has previously warned about claims which may use arguments dating back to the Magna Carta, which people may attempt to apply to various types 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 online misinformation around mortgages can lead to “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 said people should instead speak to their lender, who can offer “real options that can help”, and they should also consider seeking free help 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 seen cases where people have been sold promissory notes relating to mortgage payments and it has not upheld cases 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, principal 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.”