The FSA estimates up to 8 per cent of households are subject to some form of mortgage forbearance.
Published in the Bank of England’s Financial Stability Report, released yesterday, the findings of an FSA review into forbearance covered three-quarters of all mortgages.
The Bank requested the regulator undertake such a study because of growing concerns that the true arrears picture was being masked by lender action.
The FSA found forbearance taking place in 5 per cent to 8 per cent of all households depending on definition.
The FSR states: “FSA estimates indicate that around 5 per cent of these households would have been in arrears of six or more months if they had not received forbearance. That suggests that, in the absence of forbearance, the mortgage arrears rate might have been 0.5 percentage points higher at 1.7 per cent, even at near-zero official interest rates .”
It adds that provisions for mortgages in forbearance are around three times higher than non-forborne mortgages.
It states: “Given the limited evidence on the performance of forborne loans, it is not possible to assess whether this higher provision coverage is adequate. But FSA scenario analysis suggests any provisioning shortfall is unlikely to be systemically significant. Nevertheless, lenders who have exercised greater forbearance could be more exposed to losses in the event of a sharp deterioration in macroeconomic conditions.”
The Bank says the FSA has now completed its review of forbearance and is working with banks to mitigate future risks.