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The Financial Services Authority, which is the Government regulator for the financial industry in the UK, has written to all mortgage lenders and mortgage administrators giving them until January 31 to ensure that their customers facing arrears are being treated fairly.

The letter is the second warning to lenders from the FSA in recent months. It comes in light of its earlier review, which found weaknesses in arrears and repossessions handling

Jon Pain, retail managing director at the FSA, says: "Conditions in the mortgage market are difficult and it seems likely that these conditions will persist for sometime. In such a challenging operating environment it is particularly important for senior management to ensure the fair treatment of customers, including when they go into arrears."

"Where we find that lenders are not complying with our requirements we will make appropriate and properly targeted use of our existing regulatory tools, which may include enforcement action."

The regulator is making sure that all UK mortgage lenders critically review their current arrears policy, and is making sure that all borrowers in arrears are being treated fairly by initiating a review of a sample of cases to assess whether the FSA's requirements are being met.

The FSA says any weaknesses must be met with “urgency” in light of the Government’s repeated pledges to keep people from repossession.

To Keep up with news and comments on the current adverse credit market please visit the Adverse Mortgage Blog.