FSA principal risk specialist Karen Wilshere says lenders could have left “hundreds of thousands” of borrowers in a worse position by providing forbearance when they have experienced money problems.
Since the financial crisis, the Government and regulator have pushed banks to employ forbearance measures such as payment holidays, temporary reductions in monthly repayments, temporarily switching borrowers to interest-only mortgages or extending mortgage terms for struggling borrowers to increase their chances of remaining in their homes.
The FSA estimates around 8 per cent of households are in forbearance. Statistics from the Council of Mortgage Lenders show forbearance measures have reduced the level of repossessions from around 12,700 at the start of 2009 to around 8,500 up to the end of the second quarter of 2012.
Speaking at the Council of Mortgage Lenders’ annual conference in London last week, Wilshere said: “I would probably say some forbearance has been overused. Some forbearance has left some customers in a very difficult position – and we are probably talking about hundreds of thousands of customers in a difficult position in the future. It has been an overused tool in some circumstances.”
Crown Mortgage Management chief executive Eric Stoclet said: “I agree. Some of the conversions to interest-only meant that effectively the borrower might not have been in the position to continue repaying at a further point.”
All Types of Mortgages group chairman Vic Jannels says: “It is all very well making that point but, as I understand it, the FSA was instrumental in the issue of encouraging forbearance in the first place.”