The latest statistics from the Bank of England estimated that 11.8% of borrowers have benefited from some form of forbearance. Of these, it said that around a third thought they’d be in arrears if they hadn’t reached an agreement with their lender.
Ed Stansfield, chief property economist at Capital Economics said that if lenders think there is going to be a marked deterioration in house price outlook, it might trigger a withdrawal of forbearance.
He said: “If this happens, it would be something that would cause lenders to pull back what money they can recover from customers who have breached the terms of their loans.”
Stansfield added that a base rate hike could be problematic for lenders, as could a break-up in the eurozone if the fiscal and monetary authority is unable to stop the contagion from spreading.
“There is an increasing acceptance that the eurozone in its current form won’t exist in a year’s time. Greece will probably leave the eurozone during the course of this year or early stages of next year, this will probably be the timescale if there’s going to be a major problem in terms of upward pressure on the banks funding costs.”
Discussions over regulation among the government and the Financial Services Authority could also have an impact on lender forbearance.
Stansfield said: “It can be argued that in the current environment, the government should be giving banks more, rather than less time to build up capital reserves and change lending practices and policies, but at the same time I think they’re conscious that every month or so brings a story of a problem in a bank that suggests that they haven’t put their houses in order in the way one might have hoped.
“I think the lenders themselves are still nervous of what is still to come in terms of regulation. Any talk of rhetoric from the new FCA, the FSA and the government on tightening up regulation could see a shift in attitudes.”
However, he insists that as long as lenders can afford to keep rolling these loans over, they’ll do so where they can.
“Our own view is that we’re not convinced the recent resilience in the labour market is going to last. We think that productivity has taken a major hit and that will mean firms will have to cull workers. The next 18 months are critical.”
Charles Haresnape, chief executive of residential mortgages at Aldermore argues that managing arrears is a fine balancing act.
“All lenders would prefer borrowers to keep on paying, even if it is a reduced monthly amount for a period of time. However, there has to be an end game and lenders must therefore decide if an individual borrower has a reasonable prospect of repaying their debt, or if it’s better for all concerned to bring the situation to a head.”
Haresnape said that factors affecting the borrower’s ability to pay include rising unemployment and interest rates and slow economic growth, all of which are impacting lender forbearance.
Mike Jones, director of Halifax Intermediaries said it does not take a “one size fits all approach” when borrowers face financial difficulty.
“We take an individual considered approach depending on individual circumstances. It’s important that we can establish dialogue with borrowers very early on to discuss options including repayment plans, term extensions and options to temporarily reduce repayments.
“We will continue with the same considered approach that reviews all of the circumstances to come to the best possible solution.”
It remains to be seen which economic factor(s) will force lenders to alter their forbearance strategies in the future, but as the economic recovery continues at a snail’s pace, the fear is that it could happen sooner rather than later.
