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Forbearance for struggling home owners hits record level 24 August 2015

A record proportion of people struggling to pay their mortgages are being allowed to suspend or cut their payments, according to a study published today.

Banks and mortgage lenders are allowing a level of forbearance to the extent that 44 per cent of mortgages in payment arrears have now been granted formal arrangements.

Accountancy firm Moore Stephens studied Bank of England data to unearth the levels of borrowers being allowed to take payment holidays and reduce their payments.

The research shows that the number of people in forbearance arrangements is now at its highest level since the Bank of England started to track levels of forbearance in the first quarter of 2007 – when 29 per cent of mortgages in arrears were granted agreements.

Moore Stephens said this recent figure is higher than the previous peak of 43 per cent in the first quarter of 2012 when the knock-on effects of the recession hit home owners hard.

One factor behind this rise is the increasing pressure on mortgage lenders from the Financial Conduct Authority (FCA) to take into account the specific personal and financial circumstances of borrowers when deciding how to deal with customers in financial difficulties.

An FCA report published last year increased the onus on lenders to improve their arrears management practices.

Moore Stephens added that the total number of home loans in mortgage arrears is now at its lowest level since before the financial crisis. There were 28,749 arrears cases at the end of the first quarter of this year, down from 35,242 in the first quarter of 2007.

Jeremy Willmont, head of restructuring and insolvency at Moore Stephens, said: “Banks have come in for a lot of criticism following the credit crunch but the reality is that they are being much more sympathetic to borrowers than in the last recession.

“That is partly because of a change in attitude by banks on how they deal with distressed customers. They are doing a better job of balancing the commercial demands on the bank with their obligation to be responsible lenders.”
He added: “Although mortgage arrears cases are down, there are still significant numbers of people who are having problems meeting their financial commitments.”

“There’s serious concern that stress on household budgets could soon increase again with (higher) interest rates.”

But he also explained: “Lenders are being much more restrained and responsible in their approach to dealing with borrowers in financial difficulty. Lenders are having to be increasingly receptive to homeowners who come forward and discuss payment problems with them at an early stage.”

“They are recognising that going straight for repossession as their principal course of action is unsustainable and may not provide the best end result in the long run.”

By Marcel LeGouais



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