Yesterday saw a report from the Financial Ombudsman which revealed that record numbers of consumers are making mortgage complaints, but that too many borrowers in trouble are leaving it too late before talking to anyone about getting help.
Last year 13,659 people – the highest number recorded – contacted the ombudsman for help with a mortgage or secured loan problem. Yet a third of those people had slipped into arrears before they sought help.
The main findings are :-
• A third of people contacting the ombudsman with mortgage problems are in arrears
• 4 in 10 cases are from people who say they are struggling with their payments
• Increasing numbers of people concerned about losing their homes are in ‘debt denial’ – and risk leaving it too late to seek help
• Lenders need to take a less ‘black and white’ approach to helping people get through difficult times
The main worry around these figures are that these borrowers are struggling when interest rates are at historical lows. Lenders need to look carefully at how they handle these issues and the way they deal with existing clients and especially mortgage prisoners who are stuck on their variable rates before the Bank of England finally begins to increase rates which will undoubtedly exacerbate the situation.
Lenders can head off many of these issues now by giving existing borrowers the option to switch on to affordable longer term fixed rates, but not many lenders seem to be taking account of transitional arrangements that were meant to be used to help these borrowers.
The main message to anyone who thinks they may be in a situation in which they will struggle to meet their mortgage payments is to act early.
Unfortunately some people do experience issues and it is important to deal with any problems head on, there is no embarrassment in asking for help and talking through options with your broker and/or lender before it is too late.
Lenders do have a duty of care to deal with issues sensitively and there are a few tools that lenders can use to help to head off a damaging situation, from extending the term to taking a payment holiday, but borrowers need to understand that a mortgage is a loan that cannot just be simply written-off!
If lenders do not deal with issues in a helpful manner then there are other institutions that can help such as the Financial Ombudsman, Citizens Advice Bureau or some good charities such as Step Change.
Part of the issue may well be the lack of advice that borrowers have had in the past, not obtaining proper explanations of the mechanisms of a mortgage.
I would hope that now the Mortgage Market Review is in force, which ensures all borrowers get proper advice, there will be less of these issues in the future. It is important that borrowers fully understand what their and their lenders commitments are going forward, as well as taking that extra time to ensure affordability not just now, but in the future.
Obviously unforeseen issues will occur, but if borrowers, brokers, lenders and regulators continue to work closely together, the consumer will be much more protected and ready to deal with any problems that arise in the future.