In Focus: Vulnerability  

How well did lenders respond to 2020?

This article is part of
In Focus: How Covid has left the mortgage market exposed

How well did lenders respond to 2020?

A tightening of criteria and a reduction in higher loan-to-value products during the pandemic has already been well documented.

Naturally this is a purely business response to the crisis; no lender wants to risk accusations down the line of having been irresponsible, and with the Financial Conduct Authority keeping a close eye on the mortgage industry, lenders take their regulatory responsibilities seriously. 

But they are also required by regulation to treat customers fairly and to show forbearance to customers who find themselves in positions of vulnerability.

The extraordinary circumstances of a pandemic and the response to it are prime examples of how millions of people who would not have classed themselves as 'vulnerable' all suddenly became so almost overnight.

During the initial lockdown in 2020, therefore, the FCA implemented guidance for lenders to work with customers to support, rather than punish, them.

Many lenders also took it upon themselves to show best practice principles of communication, support and patience with their customers. 

Many have worked with individuals and brokers to work out new repayment plans for customers who may be in dire straits, and in 2020 there was the option of short-term 'payment holidays' established by the regulator. 

According to trade body UK Finance, more than 2.6m mortgage payment deferrals had been approved by November 2020. 

However, as brokers such as Andrew Montlake, director at Coreco, warned last year, people should not be misled by the word 'holiday': a debt still has to be repaid down the line. And the FCA has been clear about the rules governing such holidays (see info box).

And even the FCA, announcing the extension of the mortgage payment holidays last year, warned against thinking a deferral equivocates to non-payment.

At the time, Sheldon Mills, interim executive director of strategy and competition at the FCA, said: "The announcement ensures 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."

But largely, Martin Stewart, founder of London Money, has a lot of praise for the way in which regulators and lenders have responded to the pandemic, taking the regulatory guidance on board and proactively working with brokers and customers.

He says: "I maintain that on the whole lenders have had an excellent crisis. That is not meant to trivialise what has happened, but let's not forget that in 2008 they were the 'vampire squid bad boys' of the situation.

"This time around they have been front and centre with helping borrowers manage payment holidays or financial difficulties while lending bounce-back loans and helping new borrowers onto the property ladder.