FSE 2013: FCA fears mortgage forbearance bubble
It said it is increasingly worried that some borrowers who took a mortgage before the credit crunch hit and have subsequently found themselves falling behind with their payments could find themselves “worse off” as a result of pressure put on lenders to keep them in their homes.
The FCA told finance industry professionals at the Financial Services Expo that it was looking at whether the “increasing and enhanced use of forbearance” – lender leniency when dealing with borrowers who can’t pay their mortgage on time – was in danger of creating a bubble that would eventually burst.
Linda Woodall, director of mortgage and consumer lending at the FCA, said the regulator was actively reviewing the situation so it could “pre-empt” potential damage caused for consumers.
“While the review will be looking at how lenders treat customers in arrears this is primarily a pre-emptive review to assess and mitigate the risk of a growing forbearance bubble,” she said.
“One of the issues around [new mortgage regulation] and the general economic climate is that we understand that firms have exercised a considerable and increasing degree of forbearance.”
Woodall said while “in many respects that is good because it’s sympathetic to the borrower’s circumstances” she warned that it could have potentially severe consequences for some borrowers.
“In other respects it’s not so good because it’s putting off the inevitable,” she said. “The borrower may be put in a position that is ultimately even worse than the one they started out in.”
She said anyone worried about this situation should contact their lender and discuss their circumstances as early as possible to ascertain what alternatives there are.
And she added: “This is not about throwing people on the streets but it is about understanding what the consequences are of enhanced forbearance practices and is this a problem waiting to happen?”