There is currently a lot of discussion about the mortgage crisis, its impact on borrowers and landlords – and calls for government and regulators to intervene to ease the pain.
We do not for one moment wish to downplay the very real concerns and worries that many borrowers currently have about their ability to repay their mortgages at their current rates, and what options are going to be available to them if they have to remortgage in the coming months. But we need to look objectively at the data to put things into context and perspective.
The number of people who knowingly overstretched themselves when they took out their loans is relatively small and shrinking: mortgage regulation has been in place since 2004 – and (even) more stringent rules were bought into effect in April 2014 – requiring lenders to subject all applications to strict affordability assessments before approving the loans.
Those applications have been stress-tested to ensure that the borrowers would be able to withstand increases in interest rates.
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. 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.
When borrowers find themselves in difficulty, it is very important that they contact their lender to discuss their options.
Not all borrowers will be feeling the pinch in the same way – some may be relatively insulated from interest-rate shocks if their earnings have increased since they took on their loan and they may also have been able to pay down more of their mortgage. By contrast, others may have been affected by illness, job loss, relationship breakdown – in some cases maybe all three – and they will need advice and help.
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. This is a more targeted and effective way (and better use of resources) than setting up a government-mandated mortgage protection fund.
The most recent figures on arrears and possessions in Q1 have also attracted attention.
Arrears rates have increased two per cent on the last quarter, but this is 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.
Possessions have also increased – by 50 per cent since the previous quarter – but, again, this needs to be put into context and perspective. During the Covid-19 lockdown, there was a moratorium on lenders taking possession proceedings which meant that 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.
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. The actual number of properties taken into possession in Q1 of this year was 750 – which represents 0.03 per cent of all mortgaged properties Compare this to the 46,000 taken into possession in 2009 (following the credit crunch of 2008) – which at that time represented 0.47 per cent of all mortgaged properties.
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”. For those who need help most, there are options available.
Expert advice from intermediaries has a huge role to play here, and lenders can offer a variety of solutions which are specific to individual circumstances. As an industry, we need to avoid fuelling sensational headlines and knee-jerk reactions – and concentrate on focusing practical help where it is needed most.
* Kate Davies is executive director of the Intermediary Mortgage Lenders Association *
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Kate, you need to be worried. If buyers are not buying and lenders are not lending then your job is at risk.
I would suggest you keep that in perspective.
The Central banks have massively mis judged the situation over the last few years and have made numerous mistakes that the working people are now paying through taxation. To focus on a poor family whom have over stretched themselves to buy somewhere to live really makes sense! Not.
Government interfering in the housing market, offering incentives to first time buyers and half rent half buy, is now going to be a burden to many.
Lastly, Section 24 will mean that some Landlord's will be paying a tax on a loss. This should never be allowed to happen. But, this Government will do nothing.
High inflation means more taxes and more income for this Government. This will be short lived because next year there will be an election and they will do everything they can to convince us that this year was for the greater good and not to keep them in power. It would be no different under Labour in my view.
Great post Andy, couldn’t agree more with everything you’ve said.
I am aware of one couple who purchased 2 years ago on a cheap 2 yr fix, borrowed from family for the deposit and then due to the madness at that time over bid on an already overpriced house 😱👎🏻 They are in distress at all that is going on as they know they cannot afford the new payments from September 💀💀 on top of this they are paying back the family for the deposit 😰😰 … this is going to go south very quickly for a lot…. What ever the stress tests were.
I seriously think you’ve misread the room here Kate.
Stress testing when people were taking out mortgages at 1.8-2.2% was not at 7%+ as it is now.
In addition, who could have seen the total madness that came out of Holyrood by the Scottish Government with regards to the 3rd set of rent freezes/restrictions and evictions for the BTL sector.
I think it’s naive to say “don’t panic Mr Mannering” when the interest rates are the equivalent to 13% years ago and legal documents between landlords and tenants are being ridden roughshod through for political gain. Leases are now essentially toilet paper!
Great post. Said the way it really is.
This is not a case of those who ‘knowingly overstretched themselves’ Kate, this is people that 2/3 years ago when they took out their fixed rate at 1.79% were working on stress testing at maybe 4% to 5% (myself included) but we are way beyond that now and getting worse !
and Andy, we’ll said on all counts - I am one of those ‘Section 24 will mean that some Landlord's will be paying a tax on a loss’ to the point that I gave my tenant notice to leave in April and the property now stands empty as that is a cheaper option for me - rent £1500 pm, mortgage increasing to well over £2000 pm, plus top rate tax hit - it was okay ish on the fixed rate figure as whilst I was paying extra tax it was workable but just not worth doing on the new rate, so yet another rental property off the market and no income on it at all for the government. (sorry I’m wrong, they do still tax me on it being empty!!)
I have voted conservative all my life but over the last few years they have been - like labour have always been - totally incapable of grasping the absolute basics of economics.
So wound up are they in their own narcissistic ‘he said she said’ under bus throwing, children’s playground antics, they are killing an economy that anyone with half an ounce of savvy would be able to sort.
If they would stop all their petty finger pointing bickering, work together and listen to the people who know how to run quality profitable businesses, we just might end up with a country - and an economy- that won’t end up on its knees and that we can be proud of.
But alas I believe all bar a very few of them to be way too self centred for that to ever happen.
Very interesting points you make Jakki.
What also frustrates me is how we get a voice.
Clearly it seems we are impossible to be heard.
Of course it does not help with organisations like NRLA being highly ineffective!
I had a credible plan but the mortgage lenders over reliance on out of date credit reports has completely stuffed it up.
5 fixes ending this year. The plan was product switch the first one then get a further advance. Pay off second one to bring us down to 10 BTL mortgages which gives access to more lenders. Remortgage one that's on a tracker and a student house to release enough money to clear the mortgage on a licensed HMO. Then see how much was left over to reduce the final HMO. If everything had gone to plan nearly all the borrowing would have been below 4.49%.
Even though we have perfect credit reports with no missed payments whatsoever TMW decided my husband's unsecured credit utilisation rate was too high (51%). Last year lenders were perfectly happy with much higher utilisation. The really frustrating thing was that the report was months out of date. It didn't matter how much evidence we offered to prove it was wrong they just wouldn't change their mind. Problem was they kept pretending they might and all the while rates were increasing with other lenders.
So instead of getting everything on 5 year fixes at 4.49% or less we now have accepted 5.6% on £245000 and have no idea how much we'll be paying for the final £280000. Last week I could have got 6.59% but couldn't bring myself to accept it. So around £8000 a year more than it should have been or more than £40000 extra over 5 years purely because TransUnion can't be bothered to update credit reports in a timely fashion and had double counted a balance transfer.
Ouch 🤕
Didn't the great BJ say "F**k business" before he came to power? Clearly little has changed.
The SNP have been saying that for years … hence the mess Scotlands in!
The Renter’s Reform Bill / Brown Envelope Bill.
Mr Michael Gove didn’t we have all this before so you didn’t have to think of it.
The Tenants can leave virtually anytime at short notice but the landlord can never get vacant possession by his say so.
The landlords will be paying Tenants thousands to leave this is corruption by Statute, we had all this in this before.
Time to wake up Mr Gove you had your first reading now scrap this Bill .
We know it’s nothing to do with housing it’s to get us out.
The Big Corporate Boys are waiting on the wings. The John Lewis’s, Barclay, Lloyds, General Accident, Pension Funds etc etc. you can now have a years grace they are a year behind with Pandemic but catching up fast.
The high rise portable cabin based system built by the hundreds of thousands and delivered in batches of about 20 at a time, are going up in Towns & Cities near you, just look around you.
System Build manufactured off
site delivered ready for stacking on top of each other, they will really make a killing with this cheap construction method but the price of the Flats are top dollar. They got rid of the first tranche with help to buy (the tax payers) and no SD, while curtailing landlords with high taxes, licensing Regulators and double SD to give the Big Boys
an open field without competition. So in affect now abolishing The 1988 Act to get rid of the more stubborn ones.
Corporate landlords taken over simply . It’s a put up job they went to Harrow, Eton, Oxford, Cambridge or Harvard this is a conspiracy not an Accident, if you want your property back get the brown envelopes ready we will be back there again, with no legal remedy.
I am convinced that the MP for Dover is being lined up to be the boss of the unnecessary PRS regulatory body. She is making conciliatory noises about the illegals coming into Dover.
I am convinced our LA is being lined up for running the Redress Scheme.
What Scheme is this who is going to be Redressed are they going to Redress us for the damage they have done to us, that might be it.
Edwin my great friend ran his Business from there / Tontine St, don’t know if his sons still operate there although I heard they became a massive Company. He was top class Surveyor and Claims man, we could do with him now.
Michael, I agree with what you say, including we, as LL do not have voice at all. NRLA membership has been proven to be totally useless. We, as LL need to arrange a date to lobby at the Parliament, just as tenants and tenant associations have done. In this forum, there are only a handful of people. There are a lot of landlords, who are not members of any associations but will be affected by the changes. These landlords need to come out of woodwork and take some action. How do we publicise nationally to find landlords. Maybe through letting agents, but some do not use letting agents either. However, we need to start somewhere. The demonstration may need to be an annual affair to get us heard and in time, more landlords will get to hear and join us. The Big companies like John Lewis and banks and developers have gained momentum with the government by persuading them to remove SD from first time buyer and sell/rent the properties for 25 to 50% share, which means those purchasers now probably end up paying more interest for their so-called properties than they would in rent. Big Boys have made their money. The government feels they have helped those young people with LL's extra 3% SD. Every angle the PRS is under threat. As LLs, enough is enough. Selling properties in current market is not easy either. We need to show nationally the cause of high rents is not the LLs themselves.
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