Speaking on a panel at Deal Catalyst’s Investors’ Conference on UK Mortgage Finance, Rob Collins, head of treasury sustainability and debt capital markets at Nationwide Building Society, said: “Lenders by and large are much better at what we call triage, so if you see signs of stress, you can go out when you see those signs before customers actually start to fail on mortgage payments. I think that’s a really important difference.”
He continued that as a result lenders can then work with borrowers on budget planning and prioritisation payments before it becomes a serious issue.
Collins continued: “I think that is a great headstart and [it will] turn some cases that could have been arrears into non-arrears.”
Neil Calder, head of portfolio management credit at the European Bank of Reconstruction and Development, added that the “main difference” was a more “cohesive and consistent approach to lending”.
He pointed to more affordability measures, income and expenditure assessment and stress testing as examples.
Calder added that greater digitisation and the fall in interest-only and self-certification were also good signs.
He also noted that in previous financial crises, as Collins had outlined, triage had not been in place so repossession or auction was more common, which was to the detriment of the lender and borrower.
“We’ve come a long way in terms of managing that process and realising that actually coming to an agreed sale is best for both the lender, securitisation investor, but also that household,” he said.
Mortgage payment a priority
Calder also noted that mortgage payments were usually prioritised by borrowers, pointing to how Spain reacted post-global financial crisis (GFC).
He explained that in Spain unemployment reached very high levels after the GFC, and it was expected that this would feed through into the residential mortgage backed securities market.
He said that this did not occur for around two and a half years, and then started to creep up as people had sought help to maintain mortgage payments.
“There is a sense that hard times are ahead but for most mortgage holders in the UK, they will be able to withstand stress. The other element is the increase in dual-income households, so if unemployment does spike up, then there’s a good chance that both contributors will not be made unemployed.”
Credit cards and payment shocks
Dr Christian Thun, chief executive of European Data Warehouse, said that there were some signs of increased financial stress.
He said that the firm examined around 5.5 million credit cards and it found that the number of people maxing out their cards had doubled to one per cent in Q2, although he said that the figure was still “relatively low”.
He added that previous figures were between 0.4 per cent to 0.5 per cent, and while it could be a “one-time thing” it could be an “indication…that people are running out of funds, becoming more financially stressed or trying alternative ways to fund themselves”.
Collins observed that anecdotally across the mortgage industry people he had heard that customers were increasingly using credit cards to pay off bills and were seeking higher limits.
Outside of the credit card arena, Collins also said that there was a wave of two-year fixed rates that were coming up for renewal, and when they come to refinance they will be on higher repayments.
EPC challenge
Thun also highlighted the energy efficiency gap, noting that “the greener the household is, the richer the household is”. He also noted that those with energy efficient homes tended to have more secure jobs and salaries while houses with poorer energy efficiency tended to have lower incomes meaning they would be harder hit by energy price increases.
He said that this had ramifications for mortgage portfolios as greener portfolios could be able to weather the storm better than lower-rated properties that would “feel much higher stress levels”.
He said: “We need technological innovation to actually make [energy efficient products] cheaper for the older households. We need new products to put these people into the position where they can afford these [products] at reasonable prices.”
Collins said that innovation and government support was needed, and that the previous government had been ready to “push the button” on proposed scheme EcoPlus which would provide cheaper insulation to thousands of homes but that was now uncertain.
He added that another crucial element was consumer awareness, with rising energy bills perhaps the “catalyst” to push some to make green advances to improve their property.
