There is currently a lot of discussion about the mortgage crisis, its impact on borrowers and landlords—and calls for government and regulators to intervene to ease the pain.
We do not for one moment wish to downplay the very real concerns and worries that many borrowers currently have about their ability to repay their mortgages at their current rates, and what options are going to be available to them if they have to remortgage in the coming months. But we need to look objectively at the data to put things into context and perspective.
The number of people who knowingly overstretched themselves when they took out their loans is relatively small and shrinking: mortgage regulation has been in place since 2004—and (even) more stringent rules were bought into effect in April 2014—requiring lenders to subject all applications to strict affordability assessments before approving the loans. Those applications have been stress-tested to ensure that the borrowers would be able to withstand increases in interest rates. While there may be some borrowers who took out loans before 2014 who are now struggling with their repayments, they should be in the minority. Many who have loans that pre-date 2014 or even 2004 will have been able to pay off a significant proportion of the total—so although the rate they are now paying may be higher, it will be on a smaller capital amount.
When borrowers find themselves in difficulty, it is very important that they contact their lender to discuss their options. Not all borrowers will be feeling the pinch in the same way—some may be relatively insulated from interest-rate shocks if their earnings have increased since they took on their loan and they may also have been able to pay down more of their mortgage. By contrast, others may have been affected by illness, job loss, relationship breakdown—in some cases maybe all three—and they will need advice and help. The mortgage rules already require lenders to adopt a number of “forbearance” measures to help borrowers in difficulty. Detailed communication between lenders and borrowers is crucial, because each borrower’s circumstances will be different and the most appropriate solution will also need to be tailored on an individual basis. This is a more targeted and effective way (and better use of resources) than setting up a government-mandated mortgage protection fund.
The most recent figures on arrears and possessions in Q1 have also attracted attention. Arrears rates have increased 2% on the last quarter, but this is hardly surprising given the relatively sharp rise in interest rates. We can expect arrears to continue to tick up in the immediate future, but the overall figures are not yet a major cause for concern and, as already mentioned, there are a number of options which lenders can discuss with borrowers to tide them over this period.
Possessions have also increased—by 50% since the previous quarter—but, again, this needs to be put into context and perspective. During the Covid-19 lockdown, there was a moratorium on lenders taking possession proceedings which meant that once that moratorium was lifted, the courts were jammed up with cases which dated back pre-lockdown. This is one reason why the number of actual possessions appears to have jumped up.
We expect the possessions data to ease off as the courts catch up with the backlog. Although possession rates are apparently increasing quickly they are starting from a very low base. The actual number of properties taken into possession in Q1 of this year was 750—which represents 0.03% of all mortgaged properties. Compare this to the 46,000 taken into possession in 2009 (following the credit crunch of 2008)—which at that time represented 0.47% of all mortgaged properties.
Borrowers are feeling the pinch, and some will be harder squeezed than others. We have come out of a long period of very low interest rates, and it will take time for the markets to settle to a “new normal”. For those who need help most, there are options available. Expert advice from intermediaries has a huge role to play here, and lenders can offer a variety of solutions which are specific to individual circumstances. As an industry, we need to avoid fuelling sensational headlines and knee-jerk reactions—and concentrate on focusing practical help where it is needed most.