Lenders are getting the balance right with falling arrears

Arrears and repossession are slowing but lenders must not rush to loosen their criteria when conditions change

BOB YOUNG
BOB YOUNG MANAGING DIRECTOR CAPITAL HOME LOANS

When we discuss arrears and repossession levels it seems disingenuous to talk about positive signs, given that individual stories lie behind all the figures that have added up to make them such a statistic. But figures recently published by the Council of Mortgage Lenders show that the level of both repossessions and loans in arrears have been falling over the past year.

Our own arrears figures continue to fall substantially over the same period, and there is no reason to suggest they will do anything different in the months ahead.

There are several reasons for the fall, notably the Bank of England base rate being so low over such a long period, which has kept the cost of borrowing down.

Most lenders have also reappraised the way they handle arrears, putting much more emphasis on keeping borrowers in their homes.

We constantly work on maintaining the lines of communication between ourselves and borrowers to ensure any problems are flagged up early, solutions are agreed and we maintain the loan agreement with the client.

The positive statistics on both arrears and possessions seem to show that at present most of the lending community has the balance right.
The credit teams, rather than the origination department, now hold sway over lending policy, so credit quality is by and large good.

Brokers may express frustration at the strictness of lenders’ criteria and may call for them to be loosened, but that is both unlikely and undesirable.

Yet it would be naive to think that it will always be like this. The future may turn out to be a different beast, particularly if competition continues to increase.

We should not return to irresponsible lending just because competition for business is increasing

It will be at this point that we will truly discover if lenders have learnt any lessons from the past.

Will the strict disciplines that lenders currently have remain in place? Or will they fall back into old habits and kid themselves that, for example, the credit quality of a first-time buyer is so good that they can self-cert or fast-track them at a low price?

While lending decisions are steered by the credit team, this type of example is strictly off the agenda. But we should not believe that the discussion will never be undertaken. And it may well be at this point that the arrears axis might shift.

We should also not forget that this is an exceptional time for lenders owing to the forbearance policies that they have in place.

While today lenders are choosing not to take properties into possession, this will not always be the case. A day of reckoning on this issue is likely to occur in the near future for many borrowers.

We should certainly not exacerbate this with a return to loose criteria and irresponsible lending just because competition for business is increasing.

We must recognise the human cost of a wrong decision before loans are agreed or we are destined to see arrears and repossession levels back on the rise sooner than anticipated.