Upheld: unfair treatment in forbearance; failure to consider capitalisation of arrears; breach of mortgage regulation complaint against Clydesdale Bank Plc trading as Virgin Money
Financial Ombudsman decision DRN-6371521 of 2026-05-20T00:00:00+00:00. unfair treatment in forbearance; failure to consider capitalisation of arrears; breach of mortgage regulation complaint against Clydesdale Bank Plc trading as Virgin Money. Outcome: Upheld.
Decision detail
| Reference | DRN-6371521 |
|---|---|
| Decision date | 2026-05-20T00:00:00+00:00 |
| Firm | Clydesdale Bank Plc trading as Virgin Money |
| Product | mortgage |
| Claim type | unfair treatment in forbearance; failure to consider capitalisation of arrears; breach of mortgage regulation |
| Outcome | Upheld |
| Remedy | Virgin Money must: (1) Rework Mr L's mortgage account as if arrears had been capitalised on a repayment basis from 1 August 2025; (2) Ensure Mr L's credit file reflects the capitalisation from August 2025; (3) Allow Mr L to select a rate available to existing customers on 1 January 2026 and apply it retroactively from the expiry of his existing rate; (4) Pay £600 total compensation (including the £200 previously offered) for distress and inconvenience; (5) Provide clear written calculations and account position statements to Mr L. |
Summary
Mr L stopped working in August 2024 to care for his ill wife and fell into arrears on his interest-only mortgage with Virgin Money. After requesting a payment holiday was denied, he resumed payments in February 2025 and maintained a payment arrangement of the monthly payment plus £100 towards arrears for six months. Virgin initially told the FOS it would consider capitalising the arrears after six months of maintained payments, but later refused, citing its policy against capitalising arrears on interest-only mortgages. The ombudsman found that mortgage regulation required Virgin to consider capitalisation as a forbearance option for Mr L's individual circumstances, and that Virgin's blanket policy was inappropriate. The ombudsman upheld the complaint and required Virgin to capitalise the arrears from August 2025 on a repayment basis, allow Mr L to select a rate from 1 January 2026, and pay £600 compensation.
The Ombudsman's reasoning
Mortgage regulation requires lenders to consider all available options when a borrower in financial difficulty requests assistance, including capitalisation of arrears. While lenders can set their own policies, they must step back from these policies to consider individual circumstances. Virgin's blanket policy against capitalising arrears on interest-only mortgages was not appropriate in Mr L's case. Capitalised arrears can be structured on a repayment basis separate from the main balance, which would have been suitable for Mr L. By August 2025, Mr L was working again and had demonstrated six months of reliable payments. Virgin's failure to capitalise the arrears prevented Mr L from refinancing at a competitive rate before his fixed rate ended, forcing him onto the standard variable rate. The ombudsman rejected Mr L's claims for overpayment returns and credit file impact compensation as not supported by evidence.
How this compares
| Group | Decisions | Uphold rate |
|---|---|---|
| Clydesdale Bank Plc trading as Virgin Money, all decisions | 82 | 22% |
Source
Read the original decision on the Financial Ombudsman Service website