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Majority of borrowers ‘could resume full mortgage payments’

The majority of customers could afford to start making full payments on their mortgage at the end of their payment holiday, according to UK Finance.

The industry body estimated that around 60 to 70 per cent of customers can demonstrate affordability to resume full payments at the end of their current payment deferral.

Last month (May 22) the government confirmed that homeowners struggling to pay their mortgage due to coronavirus can extend their payment holiday for three months, or start making reduced payments in proposals published by the Financial Conduct Authority (FCA).

In response UK Finance said the FCA’s draft guidance “contains a presumption that firms should offer all borrowers who have already taken a payment deferral a further payment deferral for three monthly payments”.

The industry body described the presumption as “unnecessary and may even be detrimental to a customer who is able to resume payments”. It suggested that a “more tailored approach would be more appropriate at this time”.

According to UK Finance, the draft guidance creates a risk that “customers who do not need a full payment deferral for a further 90 days nevertheless self-select to take a further deferral… when maintaining repayments, in whole or in part, would be more appropriate for the customer in the longer term, without creating short term financial hardship”.

Clayton Shipton, managing director at CLS Money, expressed concern over customers who may have taken a payment holiday without needing one.

He said borrowers who take a payment holiday for six months could experience a “shock to the system” when the support scheme ends.

UK Finance has previously said mortgage lenders were committed to supporting borrowers reaching the end of their three-month payment holiday to choose the next steps that best suited their needs.

Possible next steps include reduced payments, a move to interest-only payments for a period, extending the mortgage term to reduce payments or a further extension of the payment holiday, depending on the borrower’s circumstances.

The industry body said for customers “that have already taken a payment holiday on their mortgage, it may be appropriate in some circumstances for this to be extended”.

By Chloe Cheung

Source: FT Adviser

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1.24 million mortgage borrowers given payment holidays by lenders

More than 1.2 million mortgage payment holidays have been granted to households whose finances have been impacted by Covid-19, UK Finance has revealed.

This means that one in nine residential and buy-to-let mortgages (11.2%) in the UK are now subject to a payment holiday.

For the average borrower, the payment holiday amounts to £260 per month of suspended interest payments. This is calculated using the average interest rate of 2.37% on an average loan size of £132,128 in the UK, as of 31 December 2019.

On 17 March, the Government gave the go ahead for mortgage lenders to allow payment holidays and the number has more than tripled in the two weeks between 25 March and 8 April, growing from 392,130 to 1,240,680.

This is an increase of nearly 850,000 or an average of around 61,000 payment holidays being granted by lenders each day.

According to the Building Societies Association, a quarter of a million of the total figure of 1.24 million is mortgage payment holidays granted by building societies.

The UK Finance figures are grossed up from a representative sample and could be revised slightly as firms identify double-counting and other anomalies in previous daily totals.

Stephen Jones, UK Finance CEO, said: “Mortgage lenders have been working tirelessly to help homeowners get through this challenging period. The industry has pulled out all the stops in recent weeks to give an unprecedented number of customers a payment holiday, and we stand ready to help more over the coming months.”

Robin Fieth, Building Societies Association CEO, said: “We know that this is a difficult time for many homeowners with a mortgage and building society staff have been working hard to offer individuals the right solution.

“For almost quarter of a million so far, that has been a three month payment holiday offering a much needed breathing space to families whose household income is under severe pressure during the current crisis.”

Telephone lines remain extremely busy and lenders have been updating their websites with the latest information on the support available to answer customers’ queries. Many lenders are offering customers the option to apply for a mortgage payment holiday through an online form on their website.

Lenders are also urging mortgage holders not to cancel their direct debits before a payment holiday has been agreed, as this will be counted as a missed payment and could impact their credit file.

By Joanne Atkin

Source: Mortgage Finance Gazette

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Interest rates: what a base interest rate cut would mean for mortgage borrowers

Thinking of taking out a mortgage or remortgaging in 2020? With interest rates remaining at record-level lows, what would a potential further interest rate cut spell for homeowners, apart from the promise of ever-lower fixed-rate mortgage deals?

While an interest rate cut is by no means a guarantee, there is a growing assumption that the base rate will be cut further from the current 0.75 per cent on the 31 January. Does that mean that mortgage interest rates will follow suit and fall even more? Yes; however, there’s more to the consequences of this decision that simply lower mortgage rates.

The current low mortgage interest rates are not just down to the low base rate; or rather the low base rate has set off a chain reaction in which lenders are under pressure to offer ever-lower mortgage rates in a bid to secure a dwindling pool of eligible mortgage applicants.

Current mortgage approval rates lag well behind pre-2008 levels, with fewer first-time buyers coming onto the market every year. The fact is that the current crop of potential first-time homeowners simply doesn’t have the large deposits required for the hugely expensive UK properties (the price of property still sits at over seven times the average UK salary). Add to that unusual income patterns, with a growing number of people in self employment, and it is easy to see that the traditional ideal mortgage applicant lenders have favoured are becoming an increasing rarity.

The fact remains that mortgage lenders cannot afford to lose the custom of those people who can afford a mortgage, but some will find themselves in a situation where they struggle to compete for those applicants. A base rate cut will mean that the UK’s top lenders (the big banks) will either slash interest rates on their top mortgage products, or introduce new mortgage packages with attractive perks, such as cashback, or a combination of both. The reason they can do this is because they have the profit margins to accommodate making concessions to the base rate cut.

This won’t be feasible for small to medium-sized lenders, however, who simply can’t survive on rock-bottom-rate mortgage products. The only avenue for those lenders to keep a sustainable profit margin is by loosening at least some of their lending criteria, or developing more specialist products catering to people with specific circumstances, e.g. self employment, retirement, or buy to let. Those three areas in particular are likely to see an increase of tailored products with better LTVs (loan-to-interest ratios), or more options for repayment strategies on interest-only mortgages.

This is not to say that we will see anything like the loose approach to mortgage lending criteria seen prior to the financial crisis of 2008; the 100 per cent mortgage, for one, is unlikely to make a return. Apart from everything else, all changes will still need to comply with FCA (Financial Conduct Authority) lending regulations. What we are are likely to see in 2020, however, is lenders looking for ways to attract mortgage applicants who are solid, but whose financial profile would previously have categorised their application as non-straightforward.

BY ANNA COTTRELL

Source: Real Homes