The report raises the question of how customers unable to pay now, will pay off debts on their mortgage as house prices continue to slide. As the value of property continues to fall, they will be left with less equity in their home and more debt to pay off.
Exact managing director, Alan Cleary, said: “This is PR hype. It’s a political manoeuvre designed to boost Labour’s polls – it completely fails to take account of the current market situation. House prices are falling – delaying payment of mortgage interest for up to two years runs up more debt against a property which is simultaneously losing capital value. The government has given us zero detail about how borrowers who can’t pay at the end of the two year period, should be dealt with. If lenders are forced to take possession of a property two years down the line, it’s the borrower who’ll be stumped with the huge loss.”
The Exact report asserts that the government proposals fail to acknowledge basic principles of Treating Customers Fairly.
Alan Cleary, commented: “According to standard lending agreements, if a borrower cannot afford to continue repayments, the lender should repossess the property as a last resort – to minimise the financial losses for the borrower. If lenders are forced to delay the inevitable, families hit hardest by the credit crunch will be left without a home – and they’ll be in a far worse financial position than they would be if they sold up now and cut their losses.”
During the debate following last week’s Queen’s speech, the prime minister indicated that eight major lenders supported this scheme. They represent 70% of the mortgage market collectively.
But Exact MD, Alan Cleary, points out: “There is a large chunk of the mortgage market not accounted for by these guys – namely, the specialist sector. Realistically, it’s these borrowers who are most likely to go into arrears – and there’s no guarantee that specialist lenders will be able to help.”
Lenders in the specialist sector have traditionally sold mortgage assets onto third party investors via whole loan sales or securitisation. Mortgage assets are serviced, often by third party primary and special servicers.
Alan Cleary, continued: “The government really hasn’t thought about the logistics of this plan – if a borrower has lost his job and wants to apply for the mortgage holiday, he’ll go to his lender. But I don’t know of a single lender in this country whose collections department is authorised to give advice. Customers don’t know who to ask about the long term financial implications of deferring their interest payments, and lenders don’t know what to tell them – they’ve got no detail.”
Administering these policy changes will be the key to helping borrowers applying for this scheme. But according to Exact, a large majority of lenders don’t have the technology and servicing systems to implement the changes guaranteed by the government.
Cleary concluded: “Unless your lender can put these changes into practice, there is a snowball’s chance in hell that customers will see any benefit from the scheme. There will be thousands of borrowers scuppered because the government hasn’t thought it through.”
