The Association of Mortgage Intermediaries has raised concerns that increasing arrears on bridging loans could be an early sign of an affordability squeeze in the years to come, particularly given the shift to less secure forms of employment.
In its latest quarterly economic bulletin the mortgage broker trade body highlights risks posed by changing patterns in the jobs market such as increasing self-employment, part-time and contract work, as well as the trend towards people working longer and carrying mortgage debts later into life.
Ami points out that in the current low interest rate environment affordability has not come under pressure, but that many borrowers have become accustomed to historically low repayments.
The report says: “As base rate rises, affordability issues that are currently masked by temporary or part-time employment may begin to emerge fairly swiftly, particularly as businesses that have chosen to flex up their workforces using contract workers can flex them back down very quickly should their outlooks falter.”
It adds: “Mortgage arrears present a significant downside risk over the coming years, based on changing employment dynamics, an ageing society increasingly reliant on work and debt and a steadily rising bank rate.”
While Ami is careful to point out that there has been no return to the lax lending standards of the boom years, it warns that “the incidence of arrears on short-term finance loans funded by peer-to-peer and other bridging lenders has already risen”.
It says: “The number of borrowers falling behind on loan repayments, albeit in unregulated markets, is steadily climbing.
“Anecdotal evidence indicates that short-term lenders are beefing up collections departments in anticipation of further arrears; it may be that the longer term regulated market should consider its own readiness for rising arrears, particularly as the short-term sector usually leads the residential market where arrears and possessions are concerned.”
Association of Short-term Lenders chief executive Benson Hersch says: “It looks like arrears on short term loans are becoming more of an issue, as we had expected, and the recent demise of Lendy will cause many to speculate whether other lenders will be next.
“This is a timely reminder about the importance of robust underwriting and risk controls.
“Anyone can lend money, the art is being paid back – and so lenders need to make sure they have the appropriate skills and processes in place to ensure they are making the right lending decisions.”