Lenders urge government to ease SMI rules as payment deferrals end
They have asked government to change the rules on claiming SMI by cutting the waiting time to 13 weeks from the current 39.
This same change was previously enacted following the financial crisis in 2009 and stayed in place for seven years.
Lenders are now asking government to introduce the change permanently, and also to let people who claim Universal Credit (UC) also claim SMI if they are working reduced hours.
The SMI benefit is later paid back when the property is sold, “meaning that changes will have a very limited impact on the government purse but have a huge impact on the households that will benefit,” UK Finance said.
To be eligible for SMI, people must be receiving a benefit such as Job Seekers Allowance (JSA) or UC. Currently, if people move from JSA to UC, the zero-earnings rule means they can no longer get SMI if they earn any income.
Lenders want the zero-earnings rule dropped from SMI eligibility so that people can work up to 16 hours without it affecting their claim.
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, said: “Lenders, government and regulators have collaborated well during the Covid-19 pandemic to ensure support has been available to mortgage holders who have experienced financial difficulties. However, as the end of these schemes is now in sight and unemployment looks set to rise sharply, without some further action the risk of home repossession could become a reality for many families and individuals despite the best efforts of lenders.
“To support struggling homeowners as they adjust to their new normal, modifications to the SMI scheme are needed now. With SMI already structured as a loan rather than a benefit, reducing the wait-time and making the scheme more flexible would not only provide a compassionate response to those financially impacted as a result of the pandemic, it shouldn’t have a long-term impact on government expenditure.
“Without the reforms we are recommending, we expect more government funding will be required for the provision of housing benefits for former homeowners who were unable to get the financial support they needed, when they needed it.”
Charles Roe, director of mortgages at UK Finance, added: “The wait-time and eligibility criteria for SMI are preventing much-needed help going to struggling homeowners when they need it most — before their financial circumstances get worse and mortgage arrears start building up.
“We are calling on the government to urgently review the SMI scheme eligibility criteria to ensure those struggling with payments are not waiting over nine months before they can access this support,” Roe said.
Building society gross mortgage lending increases by a third in Q1 – BSA
Lending also increased from £15.9bn in the previous quarter, a 13 per cent change.
The number of mortgages approved also rose 18 per cent compared to the first three months of 2020, with 118,843 loans authorised between January and March this year. This was slightly down on Q4 however, where lenders approved 121,761 mortgages.
The market share held by building societies remained flat at 23 per cent. Mutuals held outstanding mortgage balances of £342.5bn in Q1.
Robin Fieth (pictured), chief executive of the BSA, said: “The housing and mortgage markets remained at full tilt throughout the first three months of the year as buyers rushed to take advantage of the stamp duty holiday that was originally scheduled to finish on 31 March.”
Some 26,000 first-time buyers received their mortgage through a building society during the quarter.
Looking ahead, Fieth called for a reduction in house prices to support younger buyers and a reconsideration of the stress test in light of low interest rates.
He added: “A levelling-off in house price growth would be welcome, particularly for younger buyers who continue to struggle to raise the necessary deposit or meet the regulatory affordability criteria.
“With interest rates likely to remain low for some time, a reduction in the mandated three per cent stress test would be welcome, although a thorough assessment of a borrower’s ability to repay remains essential.”
Support needed to avoid repossessions
Fieth added: “Although most borrowers who took advantage of a mortgage payment deferral have resumed payments, a small proportion are in longer term financial difficulty even before the government support schemes like furlough finish.
“Lenders will continue to offer tailored forbearance, but it is inevitable that repossession will be the only possible alternative for some, although it remains an absolute last resort for lenders.
He said: “We have been urging the government to do what they did in the financial crisis and reduce the waiting time for government help through the support for mortgage interest (SMI) loan from 39 weeks to 13.
“Repossession brings dislocation and distress – the very last thing that promotes economic recovery. SMI also represents far better value to the taxpayer than rehousing costs and housing benefit.”
Budget support renews confidence in housing market – BSA
The BSA’s latest property tracker survey shows a surge in buyer confidence following the extension of the stamp duty holiday and furlough scheme.
Some 37 per cent of people agree now is a good time to buy a property in the UK, compared to 27 per cent in December, with just 17 per cent disagreeing, down from 23 per cent in December.
There is also growing expectation that house prices will rise, with almost 40 per cent anticipating an increase over the next 12 months, a big jump from 25 per cent three months ago.
Among first-time buyers, 59 per cent said the government’s 95 per cent mortgage guarantee initiative had made them feel more positive about taking their first steps on to the property ladder.
Along with the announcement that a mortgage guarantee scheme was coming from mid-April with the five biggest banks in the country pledging to bring forward low-deposit ranges, Rishi Sunak also extended the furlough scheme until September and the stamp duty holiday until the end of June after which it begins to taper off.
According to the survey, the extension to the stamp duty holiday has led to 40 per cent of people feeling more positive about buying a property, with the furlough extension building confidence in buying a property for 33 per cent.
A lack of job security, caused by the impact of coronavirus on the economy, has been perceived as the biggest barrier to buying property and remains so at 59 per cent. However, it is steadily declining as a reason for not purchasing.
Paul Broadhead (pictured), head of mortgage and housing policy at the BSA, said: “The extension to the furlough scheme has also stimulated confidence and it’s good to see that many people are no longer citing losing their jobs as a barrier to purchasing a home.
“We should however be mindful that the full impact the Covid-19 pandemic will have on the economy is still unclear and there’s strong evidence that the effect on household finances varies considerably, with those on lower incomes most negatively impacted.
“With the latest forecast from the Office for Budget Responsibility suggesting the unemployment rate will reach 6.5 per cent this year, and many people still benefiting from mortgage payment deferrals, the overall figures may conceal those who are struggling financially and are feeling less optimistic about the future.”
RICS updates EWS1 cladding guidance to ‘unlock’ the market
The ‘valuation of properties in multi-storey, multi-occupancy residential buildings with cladding’ guidance was consulted on by lenders, valuers and fire safety experts for two months. The recommendations are set to be implemented by 5 April.
The new advice now requires buildings of any height with high pressure laminate (HPL) cladding to obtain an EWS1 form, a requirement which was not included in the original guidance.
Buildings which are five storeys or higher with combustible cladding with balconies that are linked or vertically stacked with combustible materials such as timber will also need a certificate.
For buildings over six storeys, an EWS1 form will be needed if there is cladding or curtain wall glazing.
Meanwhile, for buildings of five or six storeys, a certificate is required where there is significant cladding, which is confirmed by RICS as approximately one quarter of the whole elevation.
A certificate is also required if there is HLP, metal composite material (MCM), or if aluminium composite material (ACM) panels have been used.
For buildings of four storeys or fewer, a form is needed if there are ACM, MCM or HPL panels present.
Properties which are five or six storeys tall will not need to be inspected if they do not have ACM, MCM or HPL cladding or if any cladding used covers less than a quarter of the building.
The guidance also said if a lender or valuer is sure a building owner has met the criteria in the consolidated advice note which was issued by the government in January 2020, an EWS1 form will not be needed. A form will also not be needed for buildings taller than 18 metres with a valid building control certificate in accordance with building regulations.
Buildings which already have an EWS1 form will still be valid despite the updated guidance and this applies to a whole building or block for five years.
Guidance for consumers will also be published to inform buyers and sellers of the risks around high-rise buildings.
‘Unlocking the market’
Dame Janet Paraskeva, chair of the RICS standards and regulation board, said: “This announcement is a crucial step in unlocking the market, by ensuring that only those buildings where there are risks of costly remediation as a result of safety concerns from cladding are subject to additional checks.
“The guidance is anticipated to result in a reduction in the number of EWS1 requests which will therefore allow more focus on the assessments of higher risk buildings, which should speed up the overall process while ensuring appropriate protection for lenders and purchasers.”
In a joint statement, UK Finance and the Building Societies Association (BSA) said they welcomed the final guidance and expected the number of EWS1 requests to fall as a result. However, they said it would still be up to lenders to make risk-based decisions.
“Government confirmation that it supports the guidance produced by RICS as an appropriate, risk-based and proportionate basis on which to proceed with valuation assessments, in line with the building safety Consolidated Advice Note published in January 2020 is a welcome and necessary step for lenders,” they said.
“We anticipate that many lenders will implement this guidance, which should see the number of EWS1 requests fall. However, this is a decision for each lender to make based on their own risk appetite.
“Those buying a flat should understand that a decision made by a valuer not to require an EWS1 inspection under the new guidance is no guarantee that fire safety remediation works will not be required in the future.”
Housing secretary Robert Jenrick added: “I welcome RICS new guidance which will mean nearly 500,000 leaseholders will no longer need an EWS1 form – helping homeowners to sell or remortgage more quickly and easily.
“We need a sensible, proportionate approach to risk and costs should only be incurred where they are absolutely necessary and less costly and intrusive mitigations can’t be put in place.”
“Backed by nearly £700,000 government funding, over 500 assessors have now started training so that where valuations are needed these can be done more quickly, speeding up the process for homeowners,” Jenrick said.
Mortgage lenders pledge no more repossessions until April
They also called on government to reduce the time that borrowers must wait for a Support for Mortgage Interest loan from the current 39 weeks to 13 weeks.
In a joint statement, UK Finance and the Building Societies Association (BSA) supported the regulator’s approach which will mean the measures have been in place for a full year.
The extension would still apply to both residential and buy-to-let mortgages and follows the extension of the moratorium on private tenant evictions in England until 21 February 2021.
Wales and Scotland have banned rental evictions until 31 March 2021.
“The extension will help provide reassurance to both residential and buy-to-let borrowers that they will not have their homes repossessed at this difficult time,” the trade bodies said.
“Under the extension, members of UK Finance and the Building Societies Association will agree not to seek, or enforce, a warrant for possession before 1 April 2021, unless there are exceptional circumstances such as a customer requesting proceedings to continue or when the property is in vacant measures.”
Lenders will contact customers already in arrears before Covid-19 and who continue to be unable to make payments to work towards resolving their case.
The statement noted this could include customers choosing to go ahead with possessions.
“It will always be in the long-term interest of customers who are able to do so to resume making payments, but for anyone who is still struggling, ongoing support will be available,” the lenders added.
UK Finance managing director of personal finance Eric Leenders said the industry was committed to providing ongoing support to those facing financial difficulty as a result of the pandemic.
“The industry is fully supportive of a moratorium on possessions remaining in place until 1 April 2021 to ensure customers do not lose their home at this difficult time,” he said.
“This is part of a package of support provided by lenders for those who need it, including payment deferrals and tailored assistance.
“It is vital that customers who are concerned about their finances go online or contact their lender to understand what options and support are available to them.”
BSA head of mortgage and housing policy Paul Broadhead added: “Mortgage lenders recognise the unique circumstances which are affecting some borrowers during the pandemic, a situation which can only be exacerbated by the current lockdown and the need for some businesses to temporarily close.”
Debt advice needed
Debt support charity Step Change also welcomed the further extension on property repossessions but called for the regulator to strengthen the requirement on firms to refer people to holistic debt advice services.
Step Change head of policy Peter Tutton said: “We called last week for mortgage repossessions to be halted until after the pandemic lockdown has ended, so we’re pleased to see today’s proposal from the FCA to implement this until April.
“However, we’re concerned about the potential impact of the FCA’s proposal to allow repossession of goods and vehicles in some circumstances after 31 January – customers affected tend to be more vulnerable and some creditors have historically pursued repossession prematurely, which may not square entirely with the FCA urging firms to treat this as a last resort.
“It’s vital that the FCA not only sets out strong protections, but also monitors the response of creditors and uses its supervision powers to enforce the guidance. For people experiencing debt during the pandemic, the consequences may create real and ongoing hardship even after the public health crisis ends.”
Lenders hit back at prime minister over cladding blame
In their response, the lenders highlight they are reacting to government changes to building assessment rules which brought tens of thousands more buildings under the scope of EWS1.
They also noted that the limited number of surveyors qualified to do such assessments, believed to be around just 300, has further exaggerated the problem, although government funding has been confirmed in the last week to hopefully train 2,000 by the middle of 2021.
1,000 EWS1 forms completed
A joint statement from UK Finance and the Building Societies Association (BSA) said: “The EWS1 form was created to give industry-wide consistency to the information about potentially value-affecting works that building owners needed to provide for a mortgage valuation on properties of 18m and above.
“In January, MHCLG’s advice note for owners of multi-storey, multi-occupied buildings was updated making it clear that all buildings should include an assessment of cladding as part of their Fire Risk Assessment.
“This guidance has made it more challenging for lenders to take a pragmatic and risk-based approach as it brought multi-storey, multi-occupied buildings of any height into scope for the EWS1 which, as the only process acceptable to lenders for such checks, has led to it being requested for a far wider range of properties increasing the number of buildings from circa 1,700 to tens of thousands.
“With the limited number of suitably qualified and insured individuals currently available to conduct checks for this substantially increased number of properties, resourcing issues have inevitably followed.
“Despite this, over 1,000 EWS forms have been completed and more are being added every week. The industry continues to work with government and the Royal Institution of Chartered Surveyors (RICS) on developing an appropriate safety solution for those affected customers,” it added.
Speaking at Prime Minister’s Questions earlier this week, Johnson claimed lenders should realise EWS1 forms “are not necessary for buildings under 18m and it’s absolutely vital they understand that”.
However, that contradicts the Ministry of Housing Communities and Local Government (MHCLG) which has just agreed that only those buildings without cladding do not need the EWS1 form.
Mortgage payment holiday window extended for six months
This means borrowers who have not yet taken a payment holiday but find themselves needing to do so, will be able to for up to six months.
And those who have taken one three-month holiday will be able to take a further one.
However, borrowers who have already used a full six-month payment holiday must seek support from their lender.
Customers are being urged not to contact their lenders yet.
Banks and building societies have already agreed the move with the regulator and the FCA said it was working with trade bodies and lenders on how to implement this as quickly as possible.
The regulator will be publishing a consultation on the updated guidance today which will clarify the details further.
Make payments if you can
Its announcement came alongside the prime minister’s confirmation of a further lockdown for England starting on 5 November running until at least 2 December.
“It is important that mortgage borrowers who can afford to do so continue to make repayments. Borrowers should only take up this support if they need it,” the FCA said.
It added: “Lenders will provide information soon on what this means for their customers and how to apply for this support.
“It may also be in the interests of mortgage borrowers who expect to have long-term financial difficulties to agree other forms of tailored support with their lender.”
Trade bodies UK Finance and the Building Societies Association (BSA) echoed their support for the measures.
UK Finance managing director of personal finance Eric Leenders said: “Lenders are providing unprecedented levels of support to help customers through the Covid-19 crisis and stand ready to deliver ongoing assistance to those in need.
“The industry is working closely with the FCA to ensure customers impacted by the new lockdown measures will be able to access the most appropriate support.
“Customers seeking to access this support do not need to contact their lenders yet. Lenders will provide information after 2 November on how to apply for this support.”
BSA chief executive Robin Fieth added: “Building societies and credit unions recognise the financial pressures on some households and will continue to work hard to support customers in the coming months, working closely with the FCA.”
Mark Harris, chief executive of SPF Private Clients said it was good to see such decisive action taken so quickly.
“Many borrowers will be worrying about paying their mortgage and extending payment deferrals for a further six months will provide them with some comfort.
“However, the advice remains the same – only ask for a payment deferral if you need one.
“Interest will still rack up and you will have more to pay off in the long run so the option should only be utilised by those who really need it.”
Job insecurity overtakes raising a deposit as barrier to home ownership – BSA
This is up from March, where 35 per cent of buyers named job insecurity as a hindrance to owning a home and 65 per cent mentioned deposit.
According to the latest Property Tracker survey of 2,007 adults conducted by the Building Society Association (BSA), 40 per cent of buyers listed raising a deposit as their primary concern while 31 per cent cited future drops in house prices.
Although the lockdown had a huge impact on the housing market, the proportion of people overall who feel it is a good time to buy a property has remained stable. In June, a quarter of respondents said now was a good time to purchase, a marginal decrease on the 26 per cent who said so in March.
However, 34 per cent of buyers feel now is not the right time to buy a house, up from 23 per cent in March.
The survey also showed that 45 per cent of respondents believe house prices will fall in the next 12 months, compared to 16 per cent who predict they will increase.
Some 34 per cent of buyers have continued with their house buying process or plan to do so in the next month. Furthermore, 29 per cent of sellers either kept their property listed during the lockdown or plan to relist over the next month.
Just five per cent of sellers have not put their property on the market because of the pandemic and 11 per cent of buyers have put a pause on house hunting for the next two years.
Buyers need to feel more confident with the transaction process as nine in 10 buyers said they felt uncomfortable relying completely on virtual or third party viewings.
Some 36 per cent said evidence that properties could be viewed in a safe manner would give them more confidence in the housing market, while 28 per cent cited a complete lifting of lockdown measures.
Others were thinking on a more individualistic level as 35 per cent said increased job security would make them confident about the housing market. Some 28 per cent responded lower house prices, and just one per cent said an increase in prices would give them confidence.
Paul Broadhead, BSA head of mortgages and housing, said: “These results mark the first time that ‘raising a deposit’ hasn’t been the biggest barrier to home ownership in a decade. Many households have increased their cash savings during lockdown.
“If they grow more secure about their job prospects, this may enable buyers to put a little more towards a deposit, and if prices do moderate somewhat, it could help with affordability issues – especially for first-time buyers.”
“Once the market settles back into some form of normality and confidence in job security rebuilds, we could see a fresh landscape that appeals to aspiring homeowners,” he added.
Mortgage holiday extension could hinder lending capacity – industry reacts
Earlier this week, it was reported that the Financial Conduct Authority (FCA) was considering extending payment holidays to avoid borrowers falling into arrears and being at risk of repossession.
The FCA said it would be meeting with banks this week to discuss what support should be available once the payment freezes end, and said its plans will be confirmed in the coming weeks.
Paul Broadhead, BSA’s head of mortgages and housing said a blanket extension to payment holidays would not necessarily be in the interest of borrowers as it would mean lenders would not have an insight into their individual financial circumstances.
“If a borrower is likely to be affected for a longer period it is important that they speak to their mortgage lender. By speaking to their lender, they will receive tailored support appropriate for their circumstances,” he added.
Broadhead said: “Pausing mortgages for an extended period could also hinder lenders’ capacity for new lending just when it is needed to support the UK’s recovery from this crisis.”
Non-bank trade associations have already come together to ask the Treasury for support as they do not have the same access to funding banks have, limiting their ability to provide borrowers with mortgage holidays.
The representatives proposed schemes to the Bank of England and the Treasury to support them in offering payment holidays, but no action has been taken.
Vic Jannels, CEO at the Association of Short Term Lenders (ASTL), said: “We believe that our members will be an important part of the solution as and when we exit this pandemic and rebuild our economy.
“It is important that we work together on an effective and diverse financial response to the current situation in a way that protects consumers and supports businesses.”
Looking for the best solutions
UK Finance said it continued to work with the government and regulators to find a solution for borrowers during the crisis.
A spokesperson said: “All providers are ready and able to offer support to their customers who are impacted directly or indirectly by Covid-19.”
Lenders extend mortgage offers by three months
The move comes as the industry has been significantly affected by the restrictions imposed as part of the coronavirus pandemic, including no in-person valuations or solicitors witnessing contracts.
Lenders have already quizzed the government about shutting down the housing market, after communities secretary Robert Jenrick tweeted that moves should be delayed wherever possible.
Lloyds Banking Group, the UK’s biggest lender, had already announced it would be extending offers by three months as part of its mitigation efforts earlier this week.
‘Achieve sensible outcome’
The wider extension was announced as a joint statement by trade bodies UK Finance and the Building Societies Association (BSA).
They noted that if borrowers’ financial circumstances were hit during the extension period, or if the terms of the purchase changed, they would work closely with the borrower to “achieve a sensible outcome”.
UK Finance chief executive Stephen Jones said lenders recognised that many people looking to move into their new home were facing significant stress and uncertainty due to the impacts of coronavirus, with social distancing measures meaning many house moves would need to be delayed.
“It is clearly not appropriate for people shielding or self-isolating to move home,” he said.
“Therefore, where chains contain people in these groups, lenders, conveyancers and other professionals are working together to enable these customers’ moves to be delayed.
“Where people have already exchanged contracts for house purchases and set dates for completion this is likely to be particularly stressful.
“To support these customers at this time, all mortgage lenders are working to find ways to enable customers who have exchanged contracts to extend their mortgage offer for up to three months to enable them to move at a later date.”
BSA chief executive Robin Fieth echoed these sentiments and acknowledged the enormity of the situation.
“Lenders and borrowers face an unprecedented set of circumstances,” he said.
“People who would have been preparing and expecting to move house in the coming weeks now face a wait until Covid-19 restrictions can be lifted.
“Our hearts go out to them and our heads are clear that it would be unfair for these people to have to start their mortgage application all over again once life returns to a more normal state.
“A three-month extension of existing mortgage offers seems a fair and reasonable step to take.”
Leeds Building Society was one of the first lenders to respond to the announcement.
It confirmed that offers, which are six months as standard, would be extended to nine months where exchange of contracts has taken place.
Chief customer officer Jaedon Green said this would help borrowers who expected to complete their home purchase in the near future.
“In line with other lenders, we’re working hard to minimise disruption and inconvenience to our customers at what is a challenging time for everyone,” he said.
“Home moves are recognised as potentially stressful under normal circumstances, so we’re doing all we can to support our customers and intermediary partners.”
The mutual added that applicants whose offer expires after 30 April do not need to get in touch at this stage.