At the beginning of the crisis, people were understandably concerned about their incomes and paying their bills. BSA members responded quickly and proactively by offering payment holidays of up to three months to support borrowers whose incomes were affected by the virus.
This was pivotal in building confidence, reassurance and support to the unprecedented number of borrowers facing financial difficulties within an incredibly short period of time.
At the last count over 1.8 million payment deferrals have been granted by building societies and banks. For many, their payment holiday will shortly come to an end and lenders are already contacting customers to explain their options going forward.
On 2 June, the FCA published updated guidance for firms that outlined the regulator’s expectations about the treatment of customers. This is now in force and will remain so until the end of October.
Resuming payments after payment holidays
Transitioning these customers back to resuming monthly payments, or offering further bespoke support, is the next challenge awaiting lenders.
BSA research tells us that the majority of customers should be able to resume payments at the end of their initial payment deferral, and that many took the deferral as a precautionary measure.
The outcome for the majority of customers will likely be capitalisation of the deferred payments over the remaining term. It remains in borrowers’ best interests to resume payments as soon as possible to avoid ongoing or longer term payment difficulties.
We welcome the regulator’s emphasis on customers resuming payment where they can, by placing partial payments on an equal footing to payment deferrals, encouraging customers to pay what they can afford.
Keeping people in their homes during a public health crisis is something our members fully support, so we also agree with the extension of the possessions moratorium.
A couple of areas still need further clarification, one being the credit reference reporting process, although we are hopeful that this will be resolved shortly.
Physical valuations
Another factor causing difficulties in the market during full lockdown was the lack of physical valuations.
As the BSA became aware of the lockdown measures being applied in a number of our European neighbours, we began discussing with the surveying community and the Royal Institution of Chartered Surveyors (RICS) about how remote valuations could work within the Red Book guidelines.
We’re grateful to our colleagues from BSA Associate panel management firms Connells, Gateway and Countrywide for working quickly and carefully with societies to implement a range of desktop solutions and Automated Valuation Models (AVMs) – including for a number of building societies that had not previously used the technology.
Lenders understandably pruned back product ranges and reduced LTVs to more comfortable levels, given the lack of physical inspections.
The sheer number of criteria changes in a short space of time is likely unprecedented. I’m happy to see that these products are beginning to be reintroduced to the market now that we’re slowly coming out of the other side of the pandemic’s peak.
Encouraging signs of recovery
Mapping out a clear road to full recovery in the housing market is almost impossible at this point. But there are some encouraging early signs, such as estate agents and brokers reporting a flurry of enquiries and lenders seeing very few cases dropping out of the pipeline.
Undoubtedly we are in a state of suspense with government income support lasting until October, but the hope is we get that ‘V’-shaped recovery after all.
What all of this means for house prices remains uncertain – the RICS is maintaining its view that there is ‘material uncertainty’ in the market, but is meeting twice a week to discuss the evolving picture.
In terms of longer term support for customers, we believe that Government should reduce the waiting period for Support for Mortgage Interest (SMI) back down to 13 weeks.
As it is now in the form of a loan, the impact on the public balance sheet should be minimal and this could provide a lifeline for homeowners if the economy does have a weak period and unemployment rises. We are already seeing signs of an increase with a steady stream of announcements.
Similarly, if they could revamp a form of mortgage rescue scheme we think this would be good to have ready to go ahead of time, rather than waiting for signs of distress.
The BSA will continue to monitor the impact of Coronavirus over the coming months.
Robin Fieth is CEO of the Building Societies Association (BSA)
Editorial note: this article was written before the chancellor announced the stamp duty holiday
