Mortgage lenders are making greater use of forbearance strategies to help homeowners in arrears on their mortgage however the practice comes with several challenges, the business advisory firm said.
It said the main challenges included poor use of forbearance tools that could put customers in greater financial risk and treat borrowers unfairly.
Deloitte added that the returns on capital may also be lowered and therefore reduce new volume levels.
Regulatory risks are also higher as the Financial Service Authority looks at the prudential implications of forbearance for the firms as well as the conduct risks for consumers.
Impairment accounting and disclosure also become trickier.
Michael Coogan, strategic adviser at Deloitte’s financial services practice, said: “During the 1990s lenders were much quicker to repossess homes when people had fallen behind on their mortgages because of the level of interest rates, and the speed at which arrears rolled up.
“This time mortgage lenders have responded to the downturn by making much greater use of forbearance, where a lender and borrower renegotiate how a mortgage will be paid.
“FSA estimates indicate that up to 8% of mortgages are in forbearance and it gives borrowers time to solve their financial problems, while lenders have a better chance of helping borrowers repay their mortgages over the long term.
“However lenders must ensure that they do not make borrowers’ situation worse in the long term, and that their collections, credit and finance teams can deal with the complex demands of forbearance strategies which should be tailored to borrowers’ individual circumstances.”
