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Lenders and borrowers as we enter recession

ended 08. December 2022

What should lenders do to support borrowers as we enter what could be an unprecedented recession? After all, many households are under unbearable pressure and the risk of mortgage defaults will only rise as people struggle to pay their bills and keep their homes warm. Do we need Government intervention such as payment holidays as we had during the pandemic, or for lenders to be required to allow people to switch to interest-only effortlessly? Any other measures you think should be introduced, jot them down. Arguably, the current economic crisis is going to be more devastating than the pandemic so is the Govt behind the curve? Perhaps some lenders are doing some positive things already? If so, what? Any other thoughts, fire away.

10 responses from the Newspage community

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Justin Moy
Managing Director at EHF Mortgages
Tools such as payment holidays, and switching to interest-only for a period of time would be welcomed by most who need some assistance. I think the potential issue with any intervention is the long-term effect this might have on a customer's credit file. Would taking a payment holiday or going interest-only mean their credit file now has a blemish or two, and the chance of obtaining finance in the future becomes much harder, and more expensive? Like the Covid payment holiday, any help should not penalise those seeking help early.
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Craig Fish
Director at Lodestone Mortgages
Communication is key for both lender and borrower. Despite what many may think, lenders don't want to see borrowers struggle and they have vast experience and solutions with which to assist clients. Borrowers mustn't bury their heads in the sand and seek assistance at the slightest sniff of a problem. That way a lender can use the best tools at their disposal. It may be switching to interest-only for a while or offering payment holidays, or it could even be as simple as extending the mortgage term. There are many options, but the sooner the lender knows there is a problem, the sooner they can provide that peace of mind. However, just because it's the season of goodwill, it doesn't mean that lenders will let you off the hook. You will likely be expected to make some sacrifices such as cancelling your Netflix or Spotify subscriptions.
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Ian Hepworth
Director at Funding Solutions UK Limited
In the world of business finance, many SMEs are struggling to raise the funding they need. Increasing rates challenge affordability calculations. Legacy debts from the Covid schemes are hanging over businesses. Valuations on assets are falling and this is compounded further as lenders look to reduce LTVs. Many lenders are looking for increased guarantees to bolster security.

Businesses that are looking to borrow are having to box clever. They are having to focus more on the structure of funding and look beyond their own bank.
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Aga Gronkiewicz Certs CII (MP and ER)
Mortgage Adviser at GRN Financial Services Limited
I believe that financial education is crucial. Lenders should provide more information about how important it is to contact them when borrowers find things difficult and are struggling with their repayments. I always remind my clients that even if it seems that little can be done, communicating with their lender is way better than pretending all is fine or worse, missing or delaying a mortgage payment or other liabilities. A lender will always try to find a way forward. Lenders should do more to remind customers of this in the difficult months ahead.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Most lenders have been around a long time, a few of them 100 years plus, so they have seen most economic conditions and have policies in place to help people, if they ask for for it. The biggest issue most lenders have is lack of communication from borrowers; the first time they find out the borrower is struggling is when they contact them due to a missed mortgage payment, so don’t leave it that long. Contact your lender as early as you can if you feel you are struggling, as they want to help, be that by switching you to interest-only temporarily or extending the mortgage term, or maybe agreeing a payment holiday. All are possible if you contact your lender and ask for help. But your lender is going to expect you, and will help you prioritise, your bills; so don’t expect your lender to help if you’re insisting on keeping Sky Sports.
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Gary Boakes
Director at Verve Financial
We have grown up being told to get on the property ladder and to have our mortgage paid outright before we retire and, more recently, that interest-only is wrong. A lender's ability to switch our mortgage without any marks put on our credit profile would be fantastic in the short term. On a £250,000 mortgage over 25 years at 5%, that is a monthly saving of £437 a month, which is going to be life-changing for some families. But with better education and innovation in products and the stigma of owning your house outright reduced, then this will work long term. People will have increased savings, larger pension funds, spend more into the economy and there will be more fluid movement of houses as people downsize and release equity. Interest-only is not the enemy, in fact with the right education it could be the cure.
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Graham Cox
Director at Bridging Hub
Given the government encouraged people into the housing market with the stamp duty holiday, stoking already high property prices, they need to take some action to help homeowners who now find themselves in financial difficulty.

Allowing lenders to switch to interest-only payments will help. However, it is likely to benefit least, those who need help the most: first-time buyers who bought in the last year or two with just a 5% deposit. Most of their mortgage payment will be interest anyway as they are at the start of the mortgage term. For those borrowers, payment holidays may be of more use.

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Tom Collier
Director at Advantage FS
We have already seen a well-coordinated response to the rise in interest rates from the major UK lenders. For example, it is now possible to secure your next mortgage product around 6 months in advance of your existing deal ending. This allows those individuals that are most concerned to, at the very least, plan ahead. We're expecting rates to continue to reduce throughout spring, so if you have locked in your next deal now, you can still switch to a cheaper product for free if one comes about before your actual switch date. It really is a win-win. In extreme cases, it's arguably necessary to switch to interest-only to ensure that the household is able to function. Lenders should consider offering this with the relevant risk warning in place.
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Austyn Johnson
Founder at Mortgages For Actors
Lenders should have the ability to allow interest-only payments to help out should a life event such as losing your job happen. Proving this as legitimate will be the next hurdle.
Ensuring things like Income protection are set up at the first opportunity, is a surefire way of at least, helping people who cannot work due to sickness/injury.
I can foresee a lot of stress-related illnesses stopping people from working this coming year.

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Zaid Patel
Director at Highcastle Estates
The Government should cover a portion of mortgage payments for struggling homeowners as an interest-free loan payable over 5 years AFTER doing their due diligence as they tend to write off loans causing a black home in the economy