Analysis of Bank of England (BoE) data has shown that more mortgage borrowers than ever are being granted forbearance arrangements by their lender.
The study, conducted by accountants Moore Stephens, has shown that some form of formal alternative payment arrangement has been granted to 44% of the mortgages that were in arrears during the first quarter of 2015 – the latest period for which data is currently available. A formal alternative repayment arrangement might include: reduced payments for a period, payment holidays, deferring interest and charges or extending the repayment term.
The highest previous figure was 43%, which was reached in the first quarter of 2012, when the economic climate affected many people’s ability to make repayments. In the first quarter of 2007, the first period for which this data was recorded by the BoE, forbearance was applied to only 29% of mortgages in arrears.
The record level has been reached even though the number of mortgage borrowers in arrears has fallen to its lowest level since the banking crisis. This indicates that lenders are now more willing to allow borrowers in arrears to use forbearance, and suggests that the Financial Conduct Authority (FCA)’s appeals for firms to treat those in arrears more fairly are having a positive effect.
Jeremy Willmont, head of restructuring and insolvency at Moore Stephens, said:
“Banks have come in for a lot of criticism following the credit crunch but the reality is that they are being much more sympathetic to borrowers than in the last recession.
“That is partly because of a change in attitude by banks on how they deal with distressed customers. They are doing a better job of balancing the commercial demands on the bank with their obligation to be responsible lenders.”
However, he also made reference to “still significant numbers of people who are having problems meeting their financial commitments.” The data shows 28,749 borrowers in arrears in the first quarter of 2015.
Mr Wilmont added:
“Lenders are having to be increasingly receptive to homeowners who come forward and discuss payment problems with them at an early stage.
“They are recognising that going straight for repossession as their principal course of action is unsustainable and may not provide the best end result in the long run.”
The FCA expects firms to treat customers fairly at all times, and this includes lenders’ treatment of borrowers in arrears. Alternative repayment plans should be tailored to borrowers’ individual circumstances, and re-possession, court actions and other enforcement actions must only be used as a last resort. Charges imposed for falling into arrears should be no more than the costs incurred by the firm as a result of the arrears.
Examples of good practice cited in the FCA’s 2014 thematic review on mortgage arrears include:
• Having systems in place to identify borrowers who are unable to meet other financial commitments, or who are consolidating other debt, and hence who are at risk of falling behind with mortgage repayments
• Ensuring customers in financial difficulty are referred to free debt advice agencies as soon as possible
• Conducting rigorous assessments of how much individual borrowers can afford to repay once they go into arrears. (Accepting unnecessarily low payments for a certain period could lead to the borrower’s arrears rising significantly)
• Allowing borrowers to make repayments on a day of their choice, rather than waiting for a set date each month as specified by the lender
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.