Possibility of Freeze of House Repossessions

According to analysts, recent guidance from the FCA (Financial Conduct Authority) to residential mortgage lenders could well deliver some protection to owner-occupiers who have fallen into payment arrears. In its message, the financial watchdog instructed residential lenders to offer what it terms as tailored repayment options to those borrowers who have fallen into financial difficulty and are behind with monthly repayments.

Pandemic payment holidays to end

Currently, mortgage customers’ rights to exercise a three-month loan payment moratorium will draw to a close at the end of October. Nonetheless, until the last day of the month, customers will still be able to request what has become known as a mortgage payment holiday.

Throughout the UK, company financial statistics filed to the end of June (2020) showed that around two million homeowners had deferred repayments. According to UK Finance, the organisation that represents banks, Lloyds Bank had granted the highest number of three-month grace periods. At 470,000, there were twice as many as concessions as by NatWest group – and around four times as many as Barclays. In fourth place, HSBC had conceded delayed repayments to just over 50,000 customers.

Calls for flexible approaches

The FCA stated that while mortgage lenders will return to tailored support under the usual regulations and procedures, their approach to customers’ difficulties will have to recognise the uncertain and challenging situation. In particular, the regulator emphasised that banks and building societies should consider at length how best to deal not only with those borrowers who have lost their jobs – or are at risk of doing so – but also those who are, in effect, underemployed. This category of customer involves those working for commission or on bonus payments, whose incomes have fallen as a result of the pandemic.

Similarly, financial institutions will have to determine whether they are prepared to support borrowers who previously had a good job with a regular income, sometimes for years. Airline cabin crew, catering staff and hostelry employees fall into this category, in varying degrees.

Analysts speak of the need for banks to adopt a nuanced approach. In the prevailing climate of low interest rates, switching to an interest-only mortgage may be a realistic alternative to forbearance. Nonetheless, lenders are likely to be less generous and more cautious in the case is of mortgaged properties where borrowers simply refuse to pay.

Extent and effects on homeowner finances

This new approach and what has the makings of a social contract means that banks will probably have to work to seek reasonable solutions with customers. As observers noted, too high a proportion of the voting public has experienced financial problems for the government and aspiring politicians to tolerate a heavy-handed approach.

The extent of the problem is clear; global rating agency Standard & Poor estimates that as many as nine out of ten owner-occupiers have resumed payment of monthly instalments for their home after their payment holiday ended. Although now honouring their original commitment, many of these individuals are not yet out of the woods. It is probably the plight of these very same financially challenged homeowners that the FCA had in mind when it warned the banks against adopting a one-size-fits-all type of response. Instead, the watchdog advocated extending repayment terms or restructuring mortgages if necessary.

Notably, however, mortgage holders who exercise their right to apply for a three-month moratorium will have such applications reflected on their credit files, thus affecting possible future creditworthiness and loan approvals. These notes on files are at variance with the initial government and FCA postures announced last spring. Similarly, the Bank of England has added that tailored repayment arrangements for borrowers who are not able to resume payments in full following a payment holiday indicate an increase in the risk of credit default by such applicants.

Court limitations

In a glimmer of light at the end of the tunnel, commentators thought it unlikely that repossessions would increase to the unsettling levels seen during the recessions of the 1980s and 1990s. Banks are aware of their need to tread with care; even those repossession actions which do go ahead are likely to be subject to delay, due to temporary court closures and limitations in the availability of hearings.

Signs of recovery

More recently, the mortgage market has shown moderately promising signs. UK lending during July (2020) rose by 6.7 per cent to just above £17 billion, though this result was understandably down by 18 per cent year on year.

Auspiciously for homeowners, the house price index maintained by the Nationwide Building Society showed that residential property values remained relatively buoyant, up by 3.7 per cent in August in relation to the previous year (2019). Unfortunately, however, experts considered that the outlook for the second and third quarters of 2021 could well be less optimistic.

Contact us if you require expert advice and need to stop repossession of your home.