Jury out on effect of lender forbearance

29 March 2010

Recent statistics regarding temporary concessions on mortgage repayments indicate that lender forbearance is having an effect on the economy.

A temporary concession is defined as an agreement between a lender and a borrower allowing for the latter to pay less than their contracted monthly payment for a period.

Figures produced by the Financial Services Authority show that concessions have risen by 50% as a percentage of all arrears and by 100% in absolute terms.

Also, repossessions have dropped below 4% of all arrears - down from 5% a year or so ago.

The statistics also provide an interesting measure of the percentage of borrowers whose arrears position is improving. In Q4 2009 some 50% of borrowers improved their position, the best result for more than two years.

Looking at the situation from this perspective may lead you to believe that lender forbearance is having a positive impact.

But this is all against a backdrop of low interest rates so there should be some concern about the 50% of borrowers who have not improved their situation.

The biggest drivers of arrears performance are interest rates and employment levels so we will have to wait a while before we see whether lender forbearance is having an impact.

Let’s hope the improving trends are here to stay and not just a flash in the pan.

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