Independent review and analysis

Is forbearance finished?

Paul Diggle at Capital Economics recently tried to quantify how important a role forbearance has played in propping up the UK housing market.  He estimated that without lenders – leniency, arrears and repossession could be double the current rate. He also suggests that had banks been less forgiving, then the proportion of mortgages currently three months or more in arrears would probably be around 5-6%. That’s “in line with the peak reached in the 1990s.”

The Bank of England estimates that 11.8% of borrowers have benefited from some form of forbearance. Of these, roughly a third thought they’d be in arrears if they hadn’t reached an agreement with their lender.

But there are other elements that can possibly skew the numbers, with an apparently increasingly popular tactic being adopted by lenders; by capitalising mortgage arrears, the debt may be increased, but the borrower is no longer counted as being in arrears, removing them from the arrears statistics.

Last year the Bank of England said that despite its positive effects, lender forbearance could be obscuring a vast number of struggling borrowers and postponing inevitable repossessions. More recent announcements from lenders have seen some increasing variable rates or minimum rates chargeable, and that does not help the outlook. It seems those forbearance strategies adopted by some lenders may run out of steam quite soon.

In recent audits and reviews carried out by our experienced teams and focussing on this area, we have seen some surprising results. In some cases we have found that lenders simply could not identify the loans that had been granted any form of forbearance, as the processes and recording procedures were not appropriate. That combination of lack of accurate data and potential shrinking forbearance strategies points to a risk that needs addressing soon.

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