Jury out on effect of lender forbearance
Posted on March 29th 2010
Recent statistics regarding temporary concessions on borrowers mortgage payments are starting to show signs that lender forbearance is having a meaningful impact on the economy.
A temporary concession is defined as an agreement between lender and borrower agreeing for the latter to pay less than their contracted monthly payment for a period. The statistics produced by the FSA show that concessions have risen by 50% as a percentage of all arrears and by 100% in absolute terms and that repossessions have dropped below 4% of all arrears down from 5% a year or so ago.
The statistics also have an interesting measure of the percentage of borrowers whose arrears position is improving, the latest figures which are for Q409 show that 50% of borrowers improved their position in the period and this is the best result for over 2 years. Looking at the situation from this perspective may lead you to believe that lender forbearance is having a positive impact. This however, is against a back-drop of the lowest interest rates in history and therefore there should be some concern about the 50% of borrowers who have either not improved their situation or have got worse.
The big drivers of arrears performance are interest rates and employment levels so we are going to have to wait a while before we can really see whether lender forbearance is having an impact or indeed whether it is actually going to be the best course of action. Let’s hope that the improving trends are here to stay and not just a flash in the pan.
