New guidance from the FCA reaffirmed the obligations of mortgage lenders to support borrowers facing financial difficulties. It outlines how lenders must adopt tools to help those who have either missed payments or may be unable to meet their repayments in the future.
It comes as the regulator identifies that more than 350,000 mortgage borrowers could face payment difficulties by June 2024 – that’s in addition to those households already behind on payments.
This isn’t a baseless assessment by any means. The recent lender and administrators statistics from the Bank of England shows that mortgage arrears in Q4 2022 increased for the first time since the first quarter of 2021. In the final quarter of last year, the value of outstanding balances with arrears rose by 4.6% to £13.6bn.
Misconceptions
In all our interactions with lenders, helping firms to manage the process of realising a return on an asset, we’ve found that mortgage companies work with borrowers to look at every opportunity not to repossess the property. There’s an ugly misconception that a borrower falls into arrears and the lender sends the bailiffs round to repossess the house. In reality, it is far removed from that.
Scaremongering in the national media about the number of repossessions certainly doesn’t help either. Beyond the headlines, the vast majority of these figures are made up by landlords repossessing property, either to evict non-paying tenants or to get the property back to sell.
Latest Ministry of Justice data indicates that 733 mortgage repossessions took place in the final months of 2022. However, there were 5,409 landlord repossessions in the same quarter. It will be interesting to see how this develops if Section 21 notices and so called ‘no fault’ evictions are abolished as planned.
Nonetheless, there’s a clear argument that instead of reminding lenders to implement measures that many are already offering, the FCA needs to better communicate to borrowers that repossession is always the very last resort. Showcasing all of the help and support that their lender will provide if they speak to them will make a real difference.
In fact, with the help of asset managers such as Spicerhaart, lenders can offer support to customers to sell the property themselves – meaning action can be placed on hold or avoided.
Assisted Voluntary Sale
Experienced asset managers work closely with both the lender and borrower to not only determine the property’s true value from the outset, but to market the property through to completion. This approach ensures the borrower remains in control of the property.
The objective is to achieve the best possible price in the shortest amount of time, while delivering a positive outcome for the borrower too. With house prices remaining strong, there’s still the opportunity for borrowers to realise equity through the process and hopefully return to financial wellbeing in the future.
While assisted sales is a positive solution, not all cases are so straightforward. We’ve seen a number of poor condition properties come into possession that have been mistreated for many years. In this situation, unfortunately repossession could be deemed the best route for both the lender and also the borrower.
Once possession is obtained and marketing commences, a strategy can be put in place to market the property and secure the best price possible. As a high interest economy, high mortgage rates and a cost-of-living crisis potentially impacts more vulnerable borrowers, an end-to-end management process will be a clear advantage for lenders.
A different ‘long Covid’
While mortgage arrears remain close to historic lows, rising numbers shouldn’t be understated, especially as the FCA predicts hundreds of thousands could face difficulty in the coming months and years.
We have a whole generation of house buyer only used to historically low interest rates and now set to face a real rate shock. In addition to those coming off fixed rates this year, we must also consider those Covid buyers who took advantage of ultra-low rates and a stamp duty holiday to move into much bigger houses. Instead of saving in the good times, greater disposable income meant for many, new cars, new furniture and foreign holidays.
Now these homeowners are facing the prospect of higher energy bills, the return of commuting costs and other bills prompted by wider economic instability and a cost-of-living crisis. That’s all before brokers explain rates now start with a four rather than a one or even less.
It’s therefore vital that in addition to a broad range of forbearance measures, lenders better communicate to borrowers that partnerships and mechanisms exist to avoid repossession, something all parties want to avoid.
David Miller is divisional director at Spicerhaart Corporate Sales
