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BoE risks self-employed mortgage meltdown if TFS not extended to non-banks – Blackwell

by: Lynda Blackwell, ThistleDhu Consulting
  • 26/03/2020
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BoE risks self-employed mortgage meltdown if TFS not extended to non-banks – Blackwell
Millions of self-employed workers are waiting on tenterhooks to hear what emergency financial support the government will offer them later this afternoon.


Chancellor Rishi Sunak is due to unveil details of a self-employed emergency income scheme akin to that being made available to employed workers, who have been told they will receive 80 per cent of their salary up to £2,500 a month if they are affected by the Covid-19 crisis.

The financial support offered to businesses, individuals and the broader economy at this time has been extraordinary and the government, Treasury and regulators should be applauded for their quick and valuable response.

As today’s expected extension of income support to the self-employed demonstrates, government is willing to fill in the gaps discovered in emergency policy.


Ringfencing promoting competition

I would hope that the Bank of England is similarly willing.

Under the current terms of the Bank of England’s emergency Term Funding Scheme, only banks and building societies are eligible to apply for support.

Non-bank lenders are expected to and, of course, will honour the government’s promise to give any homeowner and landlord who needs it, a three-month mortgage payment holiday.

However, unlike the banks and building societies, they do not have the government’s support to do this.

The irony is that following the rules forcing banks to ringfence their risky investment activity from their retail operations, banks are awash with cash.

It is mainly for this reason that mortgage rates have been so competitive for so long.


No good reason not to

The lenders that really need the Bank of England’s help and support are those that lack this cash and rely on funding lines, many of which are being withdrawn amid the panic caused by the outbreak.

I can see no good reason for the Term Funding Scheme to exclude non-bank lenders, which are authorised and governed by the Financial Conduct Authority in much the same way as banks and building societies.

Excluding them creates an imbalance that risks leaving millions of homeowners with very few options when it comes to remortgaging or applying for any other sort of help to see them through the financial difficulties that are the inevitable result of the coronavirus health crisis.

The non-bank lenders serve those borrowers who cannot get access on the high street – the self-employed, those with complex or multiple sources of income, those who have suffered financial difficulties in the past, older homeowners who need to borrow into retirement.

We are already seeing some of these lenders forced to withdraw products and even suspend lending and it is their customers who will suffer.

The government and Bank of England have already shown that they are willing to ‘do whatever it takes’ to see the country through this health crisis and the financial crisis that will inevitably follow.

I would urge the Bank of England to extend access to the Term Funding Scheme to non-bank lenders.


Advisers will suffer

I also worry that there is a very significant risk that the availability of mortgage advice will suffer if the Bank of England does not act swiftly to address this imbalance.

Mortgage brokers offer customers an invaluable service, especially those for whom it is harder to sail through high street lenders’ online systems designed to filter out all but the lowest risk borrowers.

Brokers rely on specialist lenders to offer these clients competitive and affordable mortgages. Without them, it is likely that the adviser market will suffer.

Already, broker firms will be assessing whether or not to reduce headcount. Without support from the Bank of England, the loss of specialist lenders from the market will exacerbate this quickly.

Government and the Bank of England must recognise the value non-banks offer the economy and some of the most vulnerable individuals in society.

Especially at a time when people face losing their jobs and there is such uncertainty on support for the self-employed, these lenders are essential.


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