The firm has done a study of the government’s plan to defer mortgage interest payments for two years and has slammed it as badly thought out and little more than political spin.
Exact says the two-year mortgage holiday would mean cash strapped borrowers would just run up more debt against a property that is rapidly losing capital value.
With the government failing to provide any information about what will happen to borrowers who still can’t afford the mortgage payments at the end of the two-year period, borrowers could actually find they would have been better off getting repossessed sooner rather than later.
For example, if a borrower had an LTV of 75%, then based on the current average house price of £203,539 (according to the DCLG October house price index) then then the outstanding debt on their mortgage would be £152,654.
On a 2-year fixed rate mortgage at 4.89% (Halifax, 2-year fix 10.12.08) their outstanding mortgage debt at the end of the 2-year mortgage holiday would be £167,948.
If they can’t pay their mortgage at the end of the 2 years then they would be either forced to sell or their property is repossessed and the lender sells.
Derivative markets are currently predicting house price falls of 33% over the next two years.
On that basis, their home would only fetch £142,477.
This would mean that they would be in negative equity and owe their lender £25,472 after the sale of their property.
Alan Cleary, managing director of Exact, says: “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.”
Eight of the largest UK lenders have agreed in principle to back the scheme that extends to properties up to £400,000.
But there has been no detail provided about how the payment holiday will provided on loans that have been securitised.
Likewise, specialist lenders, the majority of whom sell on their assets via securitisation or loan book sales, have so far not been included in the scheme.
Exact – which was previously specialist lender edeus – warns that it’s the borrowers of specialist lenders who are most likely to go into arrears and that there’s no guarantee that specialist lenders will be able to help as a result of the way specialist loan books are sold as whole loan sales or via a securitisation.
Cleary adds: ““This is PR hype.
“It’s a political manoeuvre designed to boost Labour’s chances in the polls.
“It completely fails to take account of the current market situation.”
A full copy of the report is downloadable free of charge at www.exact.co.uk