In response to the Covid-19 pandemic, the UK Government announced forbearance measures for homeowners and tenants.
- For homeowners, this would be a payment holiday of up to 3 months and for tenants, security of tenure as landlords would not be permitted to take eviction action for the next 3 months.
- UK Finance, on behalf of its members have now confirmed the 3-month payment holiday for mortgage borrowers will be extended to include residential BTL landlords.
Loan Servicers will struggle to deal with the increased volume of enquires.
There are clearly short-term implications for owners of both residential loan and BTL portfolios, not least the impact on cash-flows. With reduced capacity due to home working and illness and as the agreed regime will be self- certification, there will be many borrowers who will take advantage of any reason not to repay.
Servicers will need to ensure these cases are ring-fenced and strategies agreed for when the payment holiday period ends.
It will be at this point that genuine arrears cases will manifest. Performing portfolios will become non-performing and Servicers are not geared to handle volume arrears cases and lack the expertise to deal with them.
House prices are likely to fall and for high LTV portfolios, the spectre of negative equity will re-surface, requiring more creative strategies to protect the debt owner’s interests.
For owners of unsecured portfolios, the picture may be worse…
There is less room to manoeuvre with forbearance as the loan will continue to deteriorate. Again, the ability of loan servicers to react to a ballooning arrears scenario is limited and the expertise to deal with this longer term does not exist.
Notwithstanding lenders will wish to introduce a range of activities that best suit their operation and those operating with greater automation may be better placed to handle volume, essentially, all lenders should be working towards similar goals and thus looking towards similar strategies, as set out below:
|Lender||Short Term||Long Term|
Quadrin would suggest funders consider some additional oversight considering the changes
- A review of intended collection strategies and borrower communications – short and long term.
- An assessment of a Servicer’s resourcing strategies
- Evaluation of new lending proposals
- Weekly oversight of record keeping – volumes within the various “buckets” – eg reason for payment holiday / reduced repayment etc.