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Deja vu for brokers over FCA’s mortgage lender intervention ‒ analysis

  • 14/03/2023
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Deja vu for brokers over FCA’s mortgage lender intervention ‒ analysis
Brokers have suggested that the FCA’s directions for lenders over how to help struggling borrowers is largely a retread of interventions made during the financial crisis and the pandemic, with lenders likely to be offering such support already.

Last week the regulator outlined its expectations for lenders, stating that lenders would need to offer some level of support to borrowers who are having problems making their monthly mortgage repayments.

The FCA said its own data found that around 356,000 borrowers could face payment difficulties by the middle of next year, on top of those who are already behind on payments. That’s down from its previous estimation of 570,000 back in September 2022.

Brokers told Mortgage Solutions that the expectations echo the interventions from the regulator during previous crises, and suggested that lenders were likely already offering such measures of support to their clients.

There were however calls for lenders to do a better job in helping borrowers understand that they don’t want to repossess properties, which may mean that those having problems with repayments will open up to the lender more quickly.

We’ve been here before

Gary Boakes, director at Verve Financial, argued that lenders only have limited options when it comes to supporting borrowers who are struggling, such as extending the term, moving to interest-only, or offering payment holidays or reduced payments.

He continued: “All of these will help depending on the client’s set of circumstances, but the fear of losing their home or affecting their future mortgage ability does mean that customers’ last call is to the lender, when it should be the first.”

Martin Stewart, director at London Money, suggested that the direction from the FCA was “simply a repeat of things we have seen before”, such as during the financial crisis and the pandemic.

David Hollingworth, associate director of communications at L&C Mortgages, said that lenders have responded well to a number of challenges in recent years when borrowers have needed help, noting that the latest guidance was unlikely to change the approach of lenders who are “well versed in how they deploy forbearance measures”.

Despite this, he suggested it was helpful for lenders to have “clear guidance” on what the regulator sees as an “appropriate response” to the situation.

“It also confirms that these approaches aren’t necessarily something that is open to all borrowers to select from and lenders will not necessarily offer all options to all borrowers depending on their individual situation. There will still be cases where it will be difficult to use a certain approach if it’s only likely to leave the borrower in a worse position rather than help them get back on their feet.”

Lenders don’t want to repossess property

Boakes suggested that lenders need to do better in letting borrowers know that they are there to help when times get tough, and that lenders are not desperate to repossess the property.

“That would mean that customers get ahead of the problem,” he concluded.

Stewart continued: “I would also suggest that all lenders have these options in their arsenal at any given time and would be sure to deploy them where they feel it could help prevent a repossession which is clearly something that everyone would want to avoid.”

The role of brokers

There is only so much that brokers can do for struggling borrowers, Stewart pointed out, noting that there is “no silver bullet” for borrowers coming off of historic low fixed rates.

“That in itself is one issue, the other is the flammable accelerator that is being thrown on the fire because people have used the low mortgage costs to increase their discretionary spending. It leaves very little wriggle room for some people,” he continued.

“I think we just need to be thankful that Consumer Duty isn’t already in play.” 

Brokers have a key role to play in helping clients keep their budgets under control, pointed out Hollingworth, which will often mean those borrowers avoid the need for such support measures altogether.

“Where options have become more severely limited then advisers will also be well placed to encourage borrowers to talk to their lender or to a debt charity rather than struggle on and allow a situation to worsen,” he added.

Looking in the wrong places for answers

The issues borrowers face stem from debt inflation rather than economic inflation, Stewart argued. He added: “We appear to be taking a hammer to the one thing that has underpinned the last 15 years of economic growth – cheap money.”

As a result, Stewart said this was something for central banks to fix, rather than the regulators.

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