The Intermediary Mortgage Lenders Association has pushed back against calls for government action to support mortgage borrowers and said lender action will be more effective than setting up a government-mandated mortgage protection fund.
In a statement released on Friday (June 16), IMLA executive director Kate Davies said she did not want to downplay the concerns of borrowers about their ability to repay their mortgages but that the situation needs to be put into perspective.
“As an industry, we need to avoid fueling sensational headlines and knee-jerk reactions – and concentrate on focusing practical help where it is needed most,” Davies said.
She highlighted that the number of people who “knowingly overstretched themselves when they took out their loans is relatively small and shrinking” and pointed to the fact that mortgage regulation has been in place since 2004, with more stringent rules brought into effect in 2014.
These rules require lenders to subject all applications to strict affordability assessments and stress tests before approving the loans.
“While there may be some borrowers who took out loans before 2014 who are now struggling with their repayments, they should be in the minority,” Davies said.
“Many who have loans that pre-date 2014 or even 2004 will have been able to pay off a significant proportion of the total – so although the rate they are now paying may be higher, it will be on a smaller capital amount,” she added.
Calls for government support for mortgage holders have emerged in the last week as the average interest rate ticks up closer to 6 per cent.
Appearing on Laura Kuenssberg’s show on the BBC on Sunday (June 18), cabinet minister Michael Gove said the government was keeping plans to support people struggling with their mortgages “under review”.
However, he said any financial support would be a decision for the Treasury and warned that any help may risk driving up interest rates further.
According to Davies, lenders are the most appropriate actor to support borrowers.
“The mortgage rules already require lenders to adopt a number of ‘forbearance’ measures to help borrowers in difficulty.
“Detailed communication between lenders and borrowers is crucial, because each borrower’s circumstances will be different and the most appropriate solution will also need to be tailored on an individual basis,” she said.
In her view, this is a more targeted and effective way to support those who are struggling, as well as being a better use of resources.
Arrears
Davies also drew attention to the most recent data on arrears and possessions and said the figures needed to be put into context.
In Q1 of this year arrears increased by 2 per cent on the last quarter.
Davies said this was “hardly surprising given the relatively sharp rise in interest rates”.
“We can expect arrears to continue to tick up in the immediate future, but the overall figures are not yet a major cause for concern and, as already mentioned, there are a number of options which lenders can discuss with borrowers to tide them over this period,” she said.
Possessions also increased, up by 50 per cent since the previous quarter, however Davies said this was as a result of the moratorium on possessions during the pandemic lockdown.
“Once that moratorium was lifted, the courts were jammed up with cases which dated back pre-lockdown. This is one reason why the number of actual possessions appears to have jumped up,” she said.
“We expect the possessions data to ease off as the courts catch up with the backlog. Although possession rates are apparently increasing quickly they are starting from a very low base,” Davies said.
In real terms, the actual number of properties taken into possession in Q1 of this year was 750, representing 0.03 per cent of all mortgaged properties.
By comparison, 46,000 homes were taken into possession in 2009.
“Borrowers are feeling the pinch, and some will be harder squeezed than others. We have come out of a long period of very low interest rates, and it will take time for the markets to settle to a ‘new normal’,” Davies said.
jane.matthews@ft.com
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