Does the UK offer robust lending policies?

Brokers weigh in as the number of customers in arrears rises

Does the UK offer robust lending policies?

Customers in arrears with their mortgages rose by 7% in the second quarter of 2023 compared with the previous quarter, according to the latest data from UK Finance.

As such, the question of whether the industry in fact says ‘yes’ to lending too often has been raised; or are too many customers simply asking what is the maximum they can get, rather than the maximum they can afford?

Not enough support

Darryl Dhoffer (pictured left), from The Mortgage Expert, believes it is not a question of the industry saying ‘yes’ too much, but rather an issue of there not being enough support from the big six lenders for customers struggling financially.

Dhoffer said clients need help with the mortgage and unsecured debts they have accrued; however, he added that “the big six lenders do not like helping these clients out”.

They have “isolated” these customers by placing restrictions on what or how much a client can consolidate on a remortgage, Dhoffer said.

“I believe obtaining unsecured debts like credit cards and personal loans need to be maxed at gross amount lent, on no more than 25% of a client’s net earnings,” he said.

Once this is reached, Dhoffer said no further personal loans or credit cards should be allowed for the customer.

“There have been too many times I have seen unsecured debts equating to 50%, 75% and even 100% of a client’s annual salary, and that is without a mortgage and standard living costs; unless changes are made, these debts will never be paid in today’s climate,” Dhoffer said.

Robust policies

Meanwhile, Scott Taylor-Barr (pictured right), financial adviser at Barnsdale Financial Management, said while there has been a rise in the number of mortgages in arrears, this must be kept in perspective. He added that as a total of mortgages in the UK, those in significant arrears represent a very small proportion.

Contrary to Dhoffer, Taylor-Barr believes the approach from the big six is well measured and the rules, checks and balances in place are working well.

“We must remember there are always going to be some people who will, for various reasons, fall into arrears; this could be due to unemployment, poor health, or death,” he said.

Taylor-Barr said no lenders can foresee all the issues that could potentially befall an applicant, and in times of economic tightening, it is expected that more people than normal will struggle.

“Many of these people will receive support from their lender and be managed out of their arrears, only a small minority will end up being repossessed,” he said.

Some of these situations, Taylor-Barr said, could be avoided with the correct personal protection in place. As such, he believes that lenders could help to encourage more people to explore their insurance options at the application stage.

Justin Moy, managing director at EHF Mortgages, agreed with Taylor-Barr that the UK’s mortgage lending policies are robust, and certainly much better than they were in 2008.

“Stress testing requirements over the last 10 years or so have shown that rates of 6% were affordable, as lenders would not have been able to agree to those mortgage facilities,” he said.

However, Moy said many borrowers have taken advantage of these long-time low rates to purchase expensive cars, increase peripheral spending, and enjoy wider lifestyle choices, and in the process become used to that pattern of spend.

“There are also many situations where two full-time incomes were needed to afford the initial mortgage, but subsequent changes to that, such as children, part-time work, and changes of employment, have now caused that mortgage to be unaffordable, and the rate increases just amplify that situation,” Moy said.

Do you believe the market offers robust lending policies and enough support for those struggling financially? Let us know in the comment section below.