Consultant Zone

Mortgage Charter ’breathing space’ gives lenders a headache

No one working in our industry will have missed the much publicised ‘Mortgage Charter’ agreed by members of UK Finance with the Government.  Many of the provisions are not new and most lenders already comply with most of the clauses, but there are significant differences now.  First, many of the agreed provisions were not previously obligatory, and second, the provisions were not widely publicised and therefore borrowers were not ‘demanding’ forbearance options as their right.

In line with its forbearance instructions to lenders during the COVID crisis, the FCA has been quick to reinforce the Charter with additional rules so that the whole market adopts similar practices, rather than just UK Finance members and a handful of others.  Just a week after the joint meeting the FCA amended its rulebook to support key commitments in the Charter.  New rules will allow borrowers to switch to interest-only payments for 6 months and/or extend their mortgage term to reduce their monthly payments, with the option to switch back within 6 months.  Both arrangements can now be offered without an affordability check.

But here is the dilemma; those who remember the last housing downturn will remember the tsunami of lender claims against associated professionals (valuers and solicitors) that were pushed back with the counter-allegation of contributory negligence in arrears handling, possession processes and procedures.  The thrust of the argument was that the lender’s collection activities caused the loss (not the valuer or solicitor).  With the current downturn in house prices, with the Halifax recording the largest year-on-year decrease since June 2011, initiative-taking lenders are planning for similar arguments again.  

The current challenging collections environment has been widely anticipated for some time, but the current decline in loan portfolio performance is accelerating quickly.  Lenders who have until now focused on gaining new loan market share are having to quickly turn their attention to the collections side of their business.  

With our experienced team of lending professionals, we are comfortable stepping into the second line to provide independent assessment of forbearance decisions, in the same manner as providing third line oversight of procedures and policies. If you would like to discuss how we can help, give us a call.