Jeff Salway: Lenders begin to get tough on mortgage arrears
THAT fewer people than expected have lost their homes during the economic slump in which we’re still mired is a rare saving grace.
Repossession levels have remained relatively modest over the past four years and while they remain high, the spike we were warned about in 2009 has failed to materialise.
The biggest reason for this, of course, is low interest rates. But don’t underestimate the impact of lender forbearance.
Lenders have been accused of being over-patient with borrowers in hardship and masking the true extent of the problems we face.
And this is why, beneath the surface, the repossessions picture is actually rather bleak.
While the number of people falling behind on their repayments is stable, the proportion more than six months in arrears is up significantly since 2008.
Almost 12 per cent of borrowers were benefiting from some form of lender leniency, according to recent Bank of England figures, including a large number who would otherwise have been deep in arrears.
That’s due partly to the increasingly widespread practice of lenders “capitalising” arrears by rolling them up into the outstanding mortgage balance – therefore removing those borrowers from the arrears figures.
Lenders are also extending mortgage terms and allowing people to take mortgage holidays, a measure that again removes those borrowers from the arrears figures.
However there are signs that lenders are now running out of patience. Complaints to the Financial Ombudsman Service about mortgages reached a record high in the three months to the end of June, it revealed this week. More than a third of the 2,234 complaints were from people experiencing financial difficulty.
The most common complaint was from people struggling to meet their mortgage payments because of the charges they have incurred. Others had failed to seek help early enough and had missed too many payments to come to an agreement with their lender. And there was a rise in the number of cases surrounding repossession, including disputes about the way lenders handled the legal proceedings.
It’s entirely unsurprising that after a long period of leniency that began under pressure from the previous government, lender attitudes are hardening.
We also learned last week that while households continue to pay down debt and cut down on their borrowing, they are saving less. While the optimistic view is that more of us are boosting our rainy day funds, NS&I research found that fewer of us are saving and those that do put money aside are saving less than a year ago. Almost four in ten savers now admit they don’t have enough savings to cope in an emergency.
In a climate of fear and uncertainty, consumer confidence continues to plumb the depths. If there’s spare money, it’s not being spent or saved. It’s being used to clear debts and overpay mortgages.
Many will be on firmer financial foundations as a result. But as lender attitudes towards hardship cases begin to change, the potential implications of a deepening of the UK economic crisis become increasingly dire.
Back to basics
On A brighter note, and it could only be really, new figures show building societies bucking the trend in the housing market. While the number of mortgages approved by banks fell to a 12-month low in May, lending by mutuals jumped that month by 54 per cent.
In all, mortgage lending by building societies and other mutuals is up 40 per cent this year (albeit on the back of a particularly moribund spell).
Around one in four loans by mutuals this year has gone to first-time buyers.
Mutuals have suffered unduly in the fallout from the banking crisis, subject to disproportionate one-size-fits-all regulation. That flawed approach views simple savings and loan building and friendly societies in the same way as the most complex banking operations. The sector has shrunk too, following several phases of consolidation, including Nationwide’s rescue of the Dunfermline.
They’re fighting back though, by doing what they do best – the fundamentals. Building societies have dominated the savings “best buy” tables in recent times, as they seek to raise cash with which to lend. Last year mutuals attracted £4 billion more in savings and boosted their lending by some £3bn.
It’s not rocket science. As banks seek to repair the reputational damage they’ve inflicted on themselves, they could do worse than follow mutuals and go back to basics.
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Wednesday 19 June 2013
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