Reacting to the recent turbulence in the mortgage market, Kate Davies (pictured), executive director of the Intermediary Mortgage Lenders Association (IMLA), said while she did not want to downplay the worries of borrowers, it was important to look at the data and put things into context.
She said: “The number of people who knowingly overstretched themselves when they took out their loans is relatively small and shrinking: mortgage regulation has been in place since 2004 – and even more stringent rules were bought into effect in April 2014 – requiring lenders to subject all applications to strict affordability assessments before approving the loans.”
Davies said borrowers will have had their affordability tested to see if they could manage higher rates.
She added: “While there may be some borrowers who took out loans before 2014 who are now struggling with their repayments, they should be in the minority. Many who have loans that pre-date 2014 or even 2004 will have been able to pay off a significant proportion of the total – so although the rate they are now paying may be higher, it will be on a smaller capital amount.”
Help is available
Davies said borrowers were able to contact their lenders if they were struggling with payments. She added that not everyone would be impacted in the same way as some may be “relatively insulated” from interest rate shocks if their income had increased since taking the loan.
She said: “By contrast, others may have been affected by illness, job loss, relationship breakdown – in some cases maybe all three – and they will need advice and help.”
The tailored advice offered by lenders to suit individual needs would also be more helpful than blanket government intervention, Davies added.
Possessions and arrears
Pointing to recent figures on arrears and possessions in the first three months of the year, Davies said these had “attracted attention”.
She said it was not a surprise that arrears rates had increased by two per cent quarter-on-quarter due to the rise in interest rates.
Davies added: “We can expect arrears to continue to tick up in the immediate future, but the overall figures are not yet a major cause for concern and, as already mentioned, there are a number of options which lenders can discuss with borrowers to tide them over this period.”
She noted that possessions had also gone up by 50 per cent in the same period but said this was due to a backlog of cases caused by a moratorium on possession proceedings during the pandemic.
Davies said: “We expect the possessions data to ease off as the courts catch up with the backlog. Although possession rates are apparently increasing quickly they are starting from a very low base. The actual number of properties taken into possession in Q1 of this year was 750 – which represents 0.03 per cent of all mortgaged properties. Compare this to the 46,000 taken into possession in 2009 (following the credit crunch of 2008) – which at that time represented 0.47 per cent of all mortgaged properties.”
Focus on practical help
Davies said some borrowers would be “feeling the pinch” more than others and after a long period of very low rates it would take time to settle into a new normal.
She also advised the industry not to overreact.
Davies added: “Expert advice from intermediaries has a huge role to play here, and lenders can offer a variety of solutions which are specific to individual circumstances. As an industry, we need to avoid fuelling sensational headlines and knee-jerk reactions – and concentrate on focusing practical help where it is needed most.”
