Lender criteria will soon adjust to withdrawal of state support – Ian Wilson
When asked about what would happen to mortgage policy once pandemic-related support ended, Wilson said: “There’s already been, I believe, a combined tightening of criteria and restricted product choice. Both of which are now improving significantly actually as we come out of this.
“And by now people are either already depending on their own income to pay their way or preparing to do so when the scheme ends. With most borrowers on track to being self-sufficient, again criteria will adapt to any of those changes.”
However, Wilson cautioned that the full extent of the pandemic’s impact on borrowers’ finance had not yet been seen.
“It’s clear that some borrowers will find it harder to refinance. We’ll see how things develop throughout the year,” he added.
Watch the video below [8:18] hosted by Samantha Partington, contributing editor and freelance journalist at Mortgage Solutions, featuring Ian Wilson, head of Halifax intermediaries.
This advertorial has been produced in association with Mortgage Solutions.
Lenders need to have ‘sense of urgency’ to protect customers as payment deferrals end
The scheme was introduced in March last year and allowed borrowers to defer mortgage payments by up to six months.
This was due to end in October last year, but new rules from the Financial Conduct Authority said applications for new mortgage payment deferrals would close on 31 March with all payment deferrals ending on 31 July.
According to the latest figures from UK Finance, around 2.9m people took a mortgage payment holiday whilst the scheme was active, and the majority have now returned to making full payments.
This is echoed by the most recent figures from lenders, who are currently reporting their half-year results.
However, as payment deferrals wind up, there are concerns that the removal of this support could lead some consumers to fall into arrears if lenders and advisors do not act quickly.
Smartr365 chief executive officer Conor Murphy said: “It was vital that lenders not only offered mortgage payment holidays to those in need but also did it quickly, given the severity of the financial situations that many found themselves in as a result of the global crisis.
“However, as this temporary lifeline comes to an end, advisers and lenders must now act with a sense of urgency to ensure homeowners do not fall from the safety of the holiday into arrears.”
He continued that the ending of the holiday should being a “renewed focus to vulnerable customers”, especially when it comes to how they are identified and supported.
“A strong CRM system, that allows you to communicate with clients virtually or in-person and keep track of their cases will be key to this. Finding ways to then help those who have been identified as needing additional support is likely to be complex and time-consuming,” he added.
Masthaven’s chief lending officer David Kennedy echoed the need for customers to be supported as schemes were rolled back.
He said: “As these pandemic measures and support schemes are wound down, it’s vitally important that customers aren’t abandoned. Some borrowers may be embarrassed to ask for help or unsure about where to turn.
“Lenders need to be proactive about identifying these customers early and reaching out to them to meet these challenges head on and avoid storing up problems further down the line.”
Kennedy added there could be a surge in customers needing specialist support and more “tailored lending”, which could be a boon for the specialist sector.
“Specialist lenders have coped well with the challenges of the pandemic so far and they have the right people and tools to take a pragmatic and personalised approach to supporting their customers through this next phase. There are certainly big challenges still to come and no one can afford to bury their head in the sand.”
A UK Finance spokesperson said that if customers were still struggling after payment deferrals end, they should contact their lender to discuss and agree on further support, which may include more tailored assistance.
This could include extending the length of the mortgage term, changing the type of mortgage, deferring the payment or interest or sums due or capitalising the interest accrued.
Updated figures from lenders on mortgage payment deferrals
The latest figures from NatWest showed there were around 500 borrowers still on mortgage payment holidays, which is down from 12,000 in the same period last year.
Coventry Building Society noted that up until 30 June this year there were 400 borrowers on a Covid-19 related mortgage payment holiday, down from 34,000 the same time last year. It added that around 98 per cent of affected customers had returned to full mortgage payments.
Lloyds has granted 491,000 payment holidays. Of these 460,000 are being repaid, 2,000 have been extended and 29,000 have missed payments.
Santander supported 256,00 customers with deferrals, but around 96 per cent were now up to date after their payment holiday. It noted that there was a value of £136m in outstanding payment holidays.
Yorkshire Building Society said it gave 40,424 payment deferrals linked to the pandemic, of which 99.5 per cent have resumed repayments.
The Co-operative Bank provided 175,000 mortgage customers until the scheme ended in March. Of those, 98 per cent had now returned to full payment.
Leeds Building Society has said that it supported 28,400 mortgages via the scheme.
Households overpay £5bn of mortgage debt amid ‘polarising’ pandemic
However, 1.6 million payment holidays were granted last year, driving down the year-on-year value of contractual mortgage payments.
While some of these will be for those families hardest hit by the pandemic there is belief that many were taken by those borrowers taking precautions and were ultimately largely unnecessary.
The council said the figures painted a “polarised” picture of how coronavirus had affected the nation.
A survey from the Bank of England carried out in November highlighted the stark difference between families’ financial health when it found that 28 per cent of households have accrued extra savings during the pandemic while 20 per cent have depleted their savings.
Paying down debt
Quarter four overpayments of £5.1bn were 18 per cent higher than the same period last year and 22 per cent up on Q3, surpassing the previous high of £4.9bn seen in the third quarter of 2007.
The council said it is likely the rise in overpayments was driven by those households who built up extra cash reserves while being forced to stay at home last year. Between March and December retail savings deposits increased by £127bn.
In total, households repaid a record £17.6bn of mortgage debt, which includes repayments that homeowners are contractually obliged to pay, equivalent to £192m a day.
The value of regular repayments in Q4 fell by two per cent year-on-year to £12.6bn and was three per cent lower than the £13bn of repayments made in the first three months of 2020 before the full force of the pandemic hit the UK.
The UK’s total mortgage debt also rose to a new high of almost £1.5trn by the end of 2020. This figure has increased by £44bn in 2020 and is three times higher than the £494bn of mortgage debt accrued in 2000.
Jim Boyd, chief executive of the Equity Release Council, said: “These figures suggest mortgage holders across the nation have been polarised by the experience of the pandemic.”
Boyd said the “unexpected gift of extra savings” had helped some households to pay down mortgage debt but some families who had been hard hit by health crisis had been forced to rely on the government’s furlough support and pause their loan payments, increasing their overall mortgage debt.
Taper end of stamp duty relief or kick problems down the road – Twenty7Tec
The technology vendor found 74 per cent of brokers agreed, “it is right for Rishi Sunak to extend the stamp duty holiday.”
Its data showed growth in searches for residential mortgages of 48 per cent, and 27 per cent for buy-to-let (BTL), during the 33 weeks from the tax holiday announcement on July 8, 2020, to February 24, 2021.
As well, mortgage documents prepared have risen 23 per cent during the tax relief period.
The technology provider called on the Chancellor to introduce tapering in tomorrow’s Budget and said otherwise, “all he is doing is moving the cliff edge further down the road, continuing this elevated level of activity before yet another deadline.”
Regional search volumes
In London, mortgage searches rose by 17 per cent during the tax relief period. Residential mortgage searches increased by 34 per cent, while BTL product searches trailed at four per cent growth.
The proportion of BTL searches in the capital dipped below the pre-stamp duty holiday level of 30 per cent.
“With fewer first-time buyer products at or above 90 per cent loan-to-value, it’s a real problem for the London scene if BTL forms a smaller percentage,” said Twenty7Tec
In Manchester, mortgage searches rose by 16 per cent during the tax holiday period. Searches for residential mortgages were up five per cent and by a whopping 53 per cent for BTL.
In Liverpool, searches rose by 17 per cent, including residential up 21 per cent and BTL at six per cent.
For Birmingham, total searches were up 25 per cent. In Wales, searches rose by 49 per cent. In Scotland, the relief did not apply to purchases of second homes or for transactions worth more than £250,000, however searches rose by 28 per cent.
Purchase versus remortgage
Nationwide, purchase documents’ share of searches rose to 62 per cent, up from 49 per cent, while remortgage documents’ slice fell to 38 per cent, down from 52 per cent. This partly reflected the number of people taking mortgage payment holidays.
Behind the scenes: a look at how lenders coped with payment holidays – Brett
When the government announced last March that borrowers could take a three-month payment “holiday” to cope with the effects of lockdown, it came as much of a shock to many lenders as it did to the rest of society.
Lenders had to digest the news and react almost overnight. But have you ever thought of just what had to be put in place to achieve this?
After all, it’s not as easy as saying “OK Mr and Mrs Smith, off you go then, speak to you again in three months’ time”.
There were systems to put in place to cope with the who, where, when – and what happens to the payments at the end.
Does the mortgage term get extended for example, or do the borrower’s payments increase at the end of the moratorium period?
And what happens if the borrower doesn’t start paying again?
In the buy-to-let world, lenders were also faced with what happens if a landlord asks to take payment holidays across their whole portfolio of properties – and what then if they want to take out further mortgages?
Setting clear goals
While we cannot speak for every lender it may be interesting for intermediaries to understand what had to happen behind the scenes – particularly as we wade through our third national lockdown.
Implementing a new, untried system with everyone working at home for the first time was inevitably challenging.
For larger lenders with legacy computer systems, it must have been a nightmare, especially as these same systems made the challenges of staff home working greater still.
We managed it by setting ourselves three clear goals:
- To implement new processes to facilitate mortgage holidays which mirrored government and regulatory guidelines
- to enable fast, accurate decisions to be made after requests to enter, and later exit, a mortgage holiday
- to monitor mortgage holidays’ performance against the wider industry.
Fortunately, we had the ability to build solutions in-house which enabled our technology to do much of the heavy lifting – our IT team worked around the clock but delivered a facility which met all three goals.
The new system also allowed anyone in the customer service team to create reports and access up-to-the-minute data on our borrowers.
This was vital so we could assess each borrower’s situation and make decisions in agreement with them, always based on what was in their best interests.
With instant access to client data, the customer service team has been able to identify distressed borrowers and make fast accurate decisions on mortgage holidays rather than taking a more blanket approach, which some lenders had to do.
The outcomes from this have been better than we could have hoped.
It meant we were able to provide customers with decisions on payment holidays within 24 hours of receiving the required information and importantly implement the underlying data architecture to support these operations.
On an ongoing basis we have also used technology to support intermediaries and to stay within service level agreements.
Even though these had to be lengthened a little, it has given intermediaries a level of transparency that is essential.
So for those who thought all seemed calm, it is like seeing the swan on the pond – graceful and calm on the surface while paddling like mad underneath.
Two-fifths of mortgage holiday borrowers would have struggled without payment breaks – FCA
Covid-19 has left more than a quarter of UK adults with low financial resilience, the Financial Conduct Authority’s (FCA) financial lives survey found.
And more than half – or 27.7m – of the UK’s adult population are considered in some sense vulnerable, a figure that had increased by 15 per cent between February and October when the second part of the survey was carried out.
Younger people and BAME adults have been hit particularly hard by the pandemic, the survey showed.
The report found that around 3.5 million people in the UK have outstanding mortgage debt at least four times their annual household income, representing a significant increase on the 14 per cent of mortgage holders in 2017.
One in six mortgage holders have taken a payment deferral in the face of the Covid crisis.
Around two thirds of those who took up a mortgage payment deferral feel their lender was sympathetic to their circumstances.
Karen Noye, mortgage adviser at Quilter, said: “Unsurprisingly, adults who were most likely to take mortgage holiday were those who were already over indebted before the pandemic showing that while the pandemic has caused significant issues for many, there is a systemic problem with debt in our society that needs to be addressed at its root.”
It’s feared that more people may suffer in the coming months, as government-backed support such as furlough and mortgage payment holidays, are withdrawn.
Noye added: “The difficulty that lies ahead is not lost on the UK, as 38 per cent of respondents, equating to roughly 19.6 million people, anticipate not being able to pay domestic bills or not being able to keep up with their mortgage, rent or credit and loan commitments over the next six months.
‘Pain not shared equally’
Nisha Arora, director of consumer and retail policy at the FCA, said: “The Financial Lives survey is fundamental to the work we do as a regulator, enabling us to hear directly from consumers across the UK.
“While there are some positives in the data, many of the findings are worrying. Since the start of the pandemic, the number of people experiencing low financial resilience or negative life events has grown.
“The pain is not being shared equally with a higher than average proportion of younger and BAME adults becoming vulnerable since March. It is likely the picture will have got worse since we conducted the survey.”
In October one in three adults said they expected their household income to fall during the next six months, while 25 per cent expected to struggle to make ends meet.
To cope with the hardships about 8.1 million, or 16 per cent, expected to take on more debt.
Vikki Jefferies, proposition director at Primis Mortgage Network, said: “What now needs addressing is the knowledge gap among consumers of the financial solutions that are out there to help – and this is where advisers will come into their own.
“Many borrowers may be more likely to resort to unsecured forms of lending to alleviate the pressure on their finances, for example.
“However, for many, this will not be the best solution over the long-term, so brokers need to play a key role in informing consumers about the alternative solutions that will be better suited to their circumstances.”
The 20 biggest mortgage stories of 2020
A herculean effort has been made by mortgage intermediaries, distributors and lenders to keep people moving and protect their savings by refinancing borrowers on to the best mortgage deals.
As the pandemic raged on, stories of government bailout packages, mortgage holidays and stamp duty savings dominated the news.
But they weren’t the only stories to make the top 20 biggest headlines on Mortgage Solutions this year.
Here’s a look back at the most read articles of 2020.
Furlough and self-employed grant schemes extended until end of April
Man uses fraudulent HMRC payments to put offer on £2.6m house
HMRC tax dodge campaign catches thousands of landlords
Boris Johnson plans 95 per cent mortgage scheme
‘Expect a government U-turn on stamp duty’ – Star Letter 18/12/2020
Two-year fixed mortgage rates hit three-year low
Mortgage lenders warned over risk from gambling addicts as credit card ban takes effect
Mortgage holiday extensions should impact credit rating – Nationwide boss
Lloyds Banking Group fined £64m for 500k mortgage arrears handling failures
Homebuyers stalling purchases until after Budget hoping for stamp duty cuts
Homeowners to receive £5,000 vouchers for green renovations
Sunak unveils further support for employees, self-employed and businesses
Landlords look to coronavirus bounce back loans as deposit for properties
Landlords have ‘huge opportunity’ to expand portfolios as stamp duty bills halved by chancellor
Landlords could be hit with 45 per cent CGT – reports
Santander cuts landlord income sources for BTL affordability
TSB launches first-time buyer range with lower stress rate
Arranging mortgages on high rise homes with cladding — what you need to know
House prices surge to recover lockdown losses – Halifax
Start by November or risk missing stamp duty savings, homebuyers warned
Some borrowers regret taking mortgage holidays but can’t be blamed for panicking – Marketwatch
UK Finance figures show around 2.6 million households took a payment holiday. But according to Experian only half of those borrowers suffered a decline in their spare income while a quarter used the scheme to build up a cash reserve. The millions of families who took the first wave of payment deferrals did not know then it could affect their future borrowing chances. That news came later from the regulator.
With the opportunity to apply for a payment deferral extended, now wiser, borrowers’ attitudes to the scheme may have changed this time around.
So, this week Mortgage Solutions is asking: Have you noticed borrowers are more wary about taking a mortgage payment holiday now it’s been said it could affect future lending decisions?
Paul Hampton, mortgage and protection consultant at Approved Mortgage Solutions
In the North East, not many people have taken out payment holidays. The take up was quite low from the beginning as a lot of people kept their jobs and unemployment wasn’t high.
Even in the cases where one party lost their job, usually the other party was still working. So I did not see many people go for mortgage holidays here.
However, I have noticed some of the landlords who took payment holidays out are now regretting it because they have come to apply for mortgages and underwriters are looking at their finances with a fine tooth comb.
They took a payment holiday to boost their cash flow, even if they still had rent coming in, but they now realise that although it does not affect their credit score it can affect future borrowing.
I knew of one who used the cash saved from a payment holiday to invest in further properties, which obviously they were not supposed to do.
When borrowers do that, it can make them look untrustworthy in the eyes of the lender because they wonder why people would go for a particular loan or support when their income has not suffered.
Piers Mepsted, managing director at Financial Advice Centre
Conversations with our clients have changed considerably since the introduction of the ‘generous’ proposal from lenders of a mortgage payment holiday.
Many borrowers were quick to take this up as at the time the future was unknown and it felt prudent to pull in the purse strings where possible. However, many of us as brokers remembered the problems borrowers experienced through taking a mortgage holiday during previous recessions.
By putting ourselves in the lender’s shoes, we see it is their responsibility first and foremost to protect the level of risk and balance sheets. For this reason, we are not surprised to see it could and therefore probably will affect lending decisions in the future, despite the industry reassurance at the time it would not.
We hear time and time again if something sounds too good to be true – it probably is.
Although credit references do not show payment holidays in the same way as mortgage arears, we are seeing questions about mortgage holidays; Covid-related job security questions and extra checks coming up regularly by underwriters.
Underwriters can also see if payment holidays were taken with sight of mortgage statements and the obvious request for recent bank statements.
Knowledge of this pending impact does not seem to be widely known outside of our industry and is not being cautioned by the government or the lending institutes. There was no guidance or caution offered when the flood gates were initially opened for a mortgage holiday instead, they were promoted heavily and easy to obtain.
The role of mortgage brokers and financial advisers in our firm has increased again to give advice in this area and ensure borrowers exercise caution by asking the question that should have been given months ago which is: ‘Is a mortgage holiday absolutely essential?’ and: ‘What other options do you have available?’
Payam Azadi, director at Niche Advice
I’ve seen less people going for them in the last month or so.
Recently it’s been communicated to them that there are consequences so I think now payment holidays are being taken for the right reasons, for people who are genuinely struggling. Before that they might have said: ‘just in case, let’s put a hold on things’.
I think, you can’t blame people because of the panic that was going around, nobody knew what was going to happen, or whether they would still have a job.
People took it as a precaution including a lot of those who were not struggling. I’m still torn because I don’t think you really penalise people.
A lot of people are losing their jobs and it’s out of their control. People that have lower incomes or are more financially vulnerable are being punished. They are in a genuinely vulnerable position and have had to ask for something that’s out of their control.
It doesn’t sit right for it to show on their credit report or have a knock on effect.
The clients are being punished – potentially three or four years down the line – for something that happens now that they don’t have a lot of control over.
There will be some people who say you should have protected yourself with income protection, or other types of protection to be able to deal with shocks. That’s a valid argument but I think what you’re doing is punishing people when they’re at their most vulnerable.
FCA maintains maximum six months deferral in mortgage payment holiday extension
However, borrowers will be limited to a maximum of six months payment deferrals under the regulator’s guidance with those who have already taken this much not being able to extend further.
The regulator also confirmed lenders can use payment holidays and take other information into account when making future lending decisions, although credit references should not be affected by a deferral.
The guidance is set to cover payments up to and including July 2021.
Borrowers who have not yet had a payment deferral will be eligible for payment deferrals of six months in total and will need to apply by the end of February to take full advantage of the forbearance.
Those who currently have a payment deferral will be eligible to top up to six months in total as will those who have previously had payment deferrals of less than six months. This includes those borrowers receiving tailored support and those who are behind on payments.
Firms will provide tailored support appropriate to borrowers’ circumstances and this may include the option to defer further payments, but it will not be under the rules of the FCA guidance.
“Payment deferrals under these proposals would not be reported as missed payments on a borrower’s credit file,” the FCA said.
“This does not mean that consumers’ ability to access credit will be unaffected in future, as lenders may take into account a range of information when making lending decisions.”
Repossessions and interest-only
The FCA has also confirmed that no one should have their home repossessed without their agreement until after 31 January 2021.
And for interest-only and part-and-part borrowers, the regulator has extended its delay of capital repayments to those wishing to do so after maturity as well as before maturity.
This means that borrowers whose mortgages matured from 20 March 2020 can delay the repayment of the capital on their mortgage until 31 October 2021.
This does not include bridging or unregulated buy-to-let mortgages however.
Sheldon Mills, interim executive director of strategy and competition at the FCA, said: “Today we have confirmed further support for borrowers struggling financially as a result of coronavirus.
“The announcement we have made today, ensures that the support offered through payment deferrals is as flexible and accessible as possible.
“This means borrowers will again be able to access payment deferrals up to a maximum of six months. However, if you are able to keep paying it will be in your best long-term interest to do so. Payment deferrals should only be taken when absolutely necessary.”
FCA chiefs fail to explain why borrowers were not told payment holidays would affect lending decisions
In a session with the Treasury Select Committee, neither FCA chief executive Nikhil Rathi or chairman Charles Randell explained why it took so long for consumers to be told about the impact of taking a payment holiday.
Rathi and Randell were being grilled on the subject by Labour MP for Mitcham and Morden Siobhain McDonagh.
McDonagh set out the timeline of the details being published compared to statements from ministers and the FCA.
“On 18 March the business secretary reassured those seeking a three-month payment break that it would not impact their credit record. On 20 March the FCA confirmed this,” she said.
“However, the FCA did not tell borrowers at this point that the mortgage payment holiday or deferrals could still influence banks’ willingness to lend to them, even if their credit scores or ratings were unchanged.
“Why was it not until the 22 May that the FCA added these warnings to the mortgage advice page and until 1 July for similar warnings to be put on the FCA’s loans, credit cards and overdraft webpage?” she asked.
Agencies or lenders
Randell said there were two different elements being considered in the situation – credit files maintained by credit reference agencies, and lenders making decisions about customers requiring the full detail of the borrower’s position.
However, he did not explain why there was a delay in being clear about the situation.
Rathi (pictured) said of the latest measures first announced Saturday: “We’ve been clear that the credit file masking is there for three months.”
He added that the FCA had been clear over the last week, that the credit score break did not mean lenders would ignore the additional indebtedness when making affordability decisions.
“It is important that when a lender makes a future lending decision they have an understanding of the overall indebtedness of a consumer,” he said.
‘We’re being straight now’
McDonagh responded sharply: “That’s not answering my question.
“To the lay person with a mortgage, they were told in March that if they took a payment holiday it would not affect them in the future.
“It took the FCA three months to put onto the website that indeed it would be taken into account.”
Rathi, who joined the FCA as chief executive in October concluded: “I wasn’t there in March, but we are being straight with borrowers now.”