The Treasury Committee was questioning mortgage lenders today on the impact of rising mortgage rates on the market.
Evidence was given by Andrew Asaam, homes director at Lloyds Banking Group, Charlotte Harrison, interim CEO of home financing at Skipton Building Society, Santander UK’s mortgage director Bradley Fordham, home commercial director at Nationwide, Henry Jordan, and Paragon’s chief executive Nigel Terrington over a nearly two-hour long session.
The Mortgage Charter was signed by around 85 per cent of the lender market, with some measures including allowing borrowers to ask for help without it impacting their credit file, the ability to temporarily switch to interest-only and extend mortgage terms to lower payments.
Jordan said it was “hard to fully say what the take up rates would be” for measures in the Mortgage Charter would be but in his personal opinion that this would be lower than payment holidays taken out during the pandemic.
He noted that within Nationwide there were over 25,000 people taking out a payment holiday in the first few days of the option being available, which rose to 100,000 in two weeks and 200,000 for the duration of those options, which he said could be viewed as a “benchmark”.
“All the options in the Mortgage Charter are available today, including the interest-only concession, but the key change is that concession would be available without affordability assessment and without an impact on a credit file,” Jordan explained.
He added that currently there were about 100 customers a month taking the interest-only option but that the credit file impact could be a “barrier” to people using that option.
Jordan continued: “I think the important component that customers need to understand is that if they do take an interest-only any concession for six months, or they extend their mortgage term, they will ultimately pay more interest.
“That’s something that we are including within the application process for those options and so probably the message from me would really be only take these options if you need to, because there will be a long-term cost,” he said.
Fordham said among customers whose mortgage product had expired in the last few months, less than four per cent had enquired about Mortgage Charter-like measures, such as a term extension or a conversion to interest-only.
He agreed with Jordan that the number of people using Mortgage Charter measures would be “lower” than the use of payment holidays during the pandemic.
Fordham added that it would encourage customers to contact lenders to talk through the options and understand them before they decide as if a customer can afford the increased payments and highlight that they will pay less interest in the long term.
Terrington said the Mortgage Charter did not cover the buy-to-let sector but said it was following its measures and would be “happy to sign” if required to.
Mortgage Charter offers ‘clarity’ and ‘consistency’
When asked what the purpose of the Mortgage Charter was if lenders were already doing many of the measures, Assam said it offered consumers and customers “clarity around what’s out there” as well as “consistency”.
“Different lenders have different approaches, so I think it does that [offers information and consistency]. I also think that inflation is still higher and there is still the ongoing squeeze for customers and consumers so I think it is helpful to mention that if things progress [there are options].”
Asked whether there were any “contradictions” between upcoming Consumer Duty regulation and the Mortgage Charter, Harrison said the “key point” of the charter was around “customer awareness and understanding”.
“The key component is to make sure that when customers are choosing to temporary move to interest-only or term extension, there’s really clear upfront that there might be cost implications and what those cost implications can be.
“If the customer then chooses and is comfortable with that to proceed, that’s okay. I think that clarity is where it’s much needed,” she explained.
She said Skipton Building Society was currently working on its process to ensure it has “built that into the into the process and so customers have a real awareness of what that means in terms of the longer term financial [impact].”
