The importance of responsible lending
A lot of people are in arrears in the UK, does the industry say yes too much?
How can this negatively impact the wider market?
Does there need to be more restrictions?
Copy article
12 responses from the Newspage communityCopy all
Copy all
Copy
In my experience, it's the complete opposite when clients need help towards their mortgage and unsecured debts they have accrued, for all manner of genuine reasons - the big 6 lenders do not like helping these clients out, by placing restrictions on what or how much a client can consolidate on a remortgage when the benefits are clear to see this WILL help struggling families, as they have to be seen to be "responsibly lending" - I do believe obtaining unsecured debts like Credit Cards and Personal Loans, needs to be maxed at gross amount lent, on no more than 25% of a client's NET earnings - once this is reached no further personal loans or credit cards are allowed - too many times i see unsecured debts equating to 50%, 75% and even 100% a client's annual salary, and that is without a mortgage and standard living costs.
Unless changes are made, these debts will never be paid, in todays climate.
Unless changes are made, these debts will never be paid, in todays climate.
Copy
I think responsible lending starts with responsible borrowing. So many times we get asked, "What is the maximum I can get" instead of "What is the maximum I can afford", This needs to stop. Whilst lenders are still allowed to do execution-only mortgages and clients can easily obtain a mortgage through a comparison website without an ounce of advice, we cant talk about responsible lending
Copy
Lending has been very responsible, which is why at the moment we have a lot of people finding it tough, but we have not seen the wholesale collapse and repossessions everywhere like in 2008. The lending decisions have not failed the market. The mini-budget disrupted the market and the Bank of England then took it upon themselves to kick households when they are down with repeated unnecessary base rate rises, piling more misery on top of the cost-of-living crisis.
Copy
I see our UK mortgage lending policies are pretty robust, much better than where we were in 2008 - stress testing requirements over the last 10 years or so have shown that rates of 6% were affordable, as lenders wouldn't have been able to agree to those mortgage facilities. What is more noticeable is that many borrowers have taken advantage of these long-time low rates to purchase expensive cars, increase peripheral spending, and enjoy more lifestyle choices, and have become used to that pattern of spend. There are also many situations where two full-time incomes were needed to afford the initial mortgage, but subsequent changes to that, such as children, part-time work, and changes of employment, have now caused that mortgage to be unaffordable, and the rate increases just amplify that situation.
Copy
Most people thought the Bank of England would gradually push up the base rate and give homeowners time to adjust to the higher interest rate environment. Unfortunately, Liz Truss had other ideas and dramatically ramped up the cost of borrowing pretty much overnight. I am not sure it is fair for the industry should be taking the blame for risky lending when the government and the Bank of England are working to drive up pricing which is in turn making mortgages unaffordable for many.
Copy
It's not the mortgages that are the problem here. It's the unsecured debt taken by mortgage holders post-completion that's the issue. That sector is still in the wild-west with checks and balances often ignored. With easy-to-apply credit fostered by freebie-credit monitoring service providers in the name of "improving credit scores," it's hardly surprising. Credit cards and loans are constantly marketed with "pre-approved" limits and often offered without affordability assessments.
Copy
The amount of people still in arrears is high in terms of pure numbers, but as a % of the overall mortgage market it is still relatively low. Mortgage brokers are highly regulated and affordability is at the centre of everything we do. We take full proof of income including payslips and bank statements on all applications, and these are checked to make sure we can do an accurate budget plan with clients on application. Lenders also stress test their affordability to ensure applicants can afford payments if interest rates were to rise. On this basis, it is fair to say most mortgage arrears will be due to changes in circumstances after people have moved into the property, and that at the point of application, it has been confirmed that the mortgage is affordable.
Copy
Whilst there has been a rise in the number of mortgages in arrears, we have to keep this in perspective; as a total of mortgages in the UK, those in significant arrears represent a very small proportion. Lenders are not being reckless and the rules, checks and balances that are in place work well. We must remember there are always going to be some people who will, for various reasons, fall into arrears; this could be due to unemployment, poor health, or death. No lenders can foresee all the issues that could potentially befall an applicant and in times of economic tightening, it is expected that more people than normal will struggle. Many of these people will receive support from their lender and be managed out of their arrears, only a small minority will end up being repossessed. Some of these situations could be avoided with the correct personal protection in place, could lenders help to encourage more people to explore their insurance options at application?
Copy
What's really required first is responsible government housing policy. One that recognises that decades of rampant house price inflation has led us to this point, with huge private and government debt, and a zombie economy. Only when we set policies to prevent nominal house price increases and have real wage growth will housing become affordable again.
Copy
Although the level of arrears is increasing it's still at historically low levels. One of the main reasons for this has been the historically low interest rates which UK borrowers have enjoyed over the past 15 years. The fears of a larger lending crisis after the 2008 credit crunch led authorities in the UK to bring in a number of measures designed to avoid a largescale property crash. This particlarly related to changes in affordability assessments used by lenders when agreeing mortgages. In that sense lenders were forced to be more conservative when granting loans. As base rates and inflation have started to increase we are seeing lenders further tighten borrowing. Whether this will lead to a negative impact on the market remains to be seen.
Copy
Mortgage arrears are never going to be welcomed by any lender but I do feel it's important that lenders are approachable and supportive of their customers to ensure the best outcomes are reached.
As we have seen 15 consecutive Bank of England base increases it's inevitable we are going to start seeing more arrears in the UK. Lenders need to be proactive and ensure this doesn't spiral and become the norm.
Mortgage payment holidays could be the solution to this but will need to be means-tested.
As we have seen 15 consecutive Bank of England base increases it's inevitable we are going to start seeing more arrears in the UK. Lenders need to be proactive and ensure this doesn't spiral and become the norm.
Mortgage payment holidays could be the solution to this but will need to be means-tested.
Copy
Luckily lenders have stress tested for quite some time now so as much as customers will be feeling the squeeze with higher rates, they should still be affordable even if uncomfortable. The mortgage market is already massively regulated so it feels like it's often other issues being the straw that breaks the camels back that could do with better regulation. I'd be looking at unsecured credit, and runaway utility bills that do drag people into a black hole of debt before piling more regulation on top of mortgages.