The mortgage industry needs to avoid sensationalism and knee-jerk reactions
Many homeowners and landlords will be able to bear greater costs, so there is no need to overestimate the worry of how mortgage rate increases will affect them.
Kate Davies, executive director of the Intermediary Mortgage Lenders Association (IMLA), responded to the recent turmoil in the mortgage industry by saying that while it was necessary to look at the data and put things in perspective, she did not want to dismiss the concerns of borrowers.
“The number of people who knowingly overstretched themselves when they took out their loans is relatively small and shrinking,” the expert claimed. “Mortgage regulation has been in place since 2004 – and even more stringent rules were brought into effect in April 2014,” she added.
According to Davies, debtors’ ability to pay increased rates will have been evaluated.
“While there may be some borrowers who obtained loans prior to 2014 who are currently having trouble making their repayments, they should be in the minority,” she continued. Many borrowers with loans from before 2014 or even 2004 will have been able to pay off a sizable portion of the total; as a result, even though their current interest rate may be greater, it will be on a smaller capital amount.
Help is accessible.
If borrowers were having trouble making their payments, according to Davies, they might contact their lenders. Not everyone will be affected equally, she continued, as some people may be “relatively insulated” from interest rate shocks if their income has grown since they took out the loan.
Contrarily, other people may have been impacted by illness, job loss, or relationship collapse — in some cases, all three — and they will require guidance and assistance, she added.
According to Davies, lenders’ individualised guidance would be more beneficial than general government involvement.
Arrearages and possessions.
Davies cited recent data on possessions and arrears from the first three months of the year, saying that these had “attracted attention.”
She claimed that the hike in interest rates did not come as a surprise, and that arrears rates had risen by 2% quarter over quarter.
There are other options that lenders can consider with borrowers to help them get through this time, Davies continued. “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,” he said.
She pointed out that during the same time period, possessions had also increased by 50%, but she explained that this was due to a backlog of cases brought on by a moratorium on possession procedures during the pandemic.
We anticipate a slowdown in possessions data as the courts clear their backlog, according to Davies. Despite appearing to be rising swiftly, possession rates are actually starting from a very low base. 750 properties were actually taken into possession in the first quarter of this year, or 0.03 percent of all mortgaged properties. Compare this to the 46,000 properties taken into possession following the 2008 credit crunch, which constituted 0.47 percent of all mortgaged properties at the time.
Place an emphasis on assistance that is practical.
According to Davies, during a protracted period of extremely low rates, certain borrowers may “feel the pinch” more than others, and it will take some time for things to return to normal.
She also cautioned the sector against overreacting.
In addition, lenders can provide a range of solutions that are tailored to specific situations, according to Davies. “Expert advice from intermediaries has a huge role to play here,” he continued. As a sector, we must avoid encouraging dramatic headlines and knee-jerk reactions and instead focus on providing useful assistance where it is most needed.