UK Finance is speaking to ministers and the Bank of England about ways of supporting the funding models of non-bank lenders, the trade body confirmed to MPs yesterday.
Speaking at a video-conference Treasury Select Committee evidence session yesterday UK Finance chief executive Stephen Jones revealed he was in “very detailed discussions” with officials about what the design of such a scheme might look like.
The Finance and Leasing Association has been calling for government help, warning that non-bank lenders’ main funding lines were essentially closed at a time when cashflow is being drained by forbearance measures such as payment holidays for struggling borrowers.
Also giving evidence yesterday FLA director general Stephen Haddrill called for non-bank lenders to be granted access to the Term Funding Scheme.
Speaking after the session he said: “By early April, FLA members had received an estimated 526,000 covid-related requests for forbearance, and had helped almost 60 per cent by that date with more in the pipeline.
“The non-bank lending sector relies heavily on capital markets and bank funding – two sources of finance which are currently closed.
“The result is that these lenders will not be able to provide new lending as well as forbearance – and when you consider that these finance companies provided £46bn of funding during 2019 to SMEs for business investment and point of sale finance for consumers, that would be a huge loss to the economy right at the point when funding will be needed to help the UK recovery.
“To remedy this, we want to see the Term Funding Scheme opened to non-bank lenders as a matter of urgency, and eligibility criteria streamlined to fast-track firms which are FCA regulated or already part of a British Business Bank scheme.”
Belmont Green chief executive Anth Mooney agrees.
The boss of Vida’s parent company says: “The UK has a vibrant specialist mortgage market, providing safe and fully regulated loans to millions of customers who do not fit high street bank criteria.
“This diverse customer base includes the self-employed, single parents, NHS and other key workers and some customers who have missed one or two payments because of an unforeseen change in their circumstances. “Beyond the covid-19 crisis, these customer groups will need our help more than ever, which is why specialist non-bank mortgage lenders must be offered the same liquidity support already made available to the high street banks by government – either directly under a specific scheme, or by forcing the banks themselves to take responsibility and channel government liquidity support out to the specialist mortgage sector.
“If that does not happen, these customers will be excluded from the market, unable to buy a family home or move their existing loan for a better deal. “This is a very real risk, which ultimately will push many customers into paying far more to borrow money than they need to.
“These are always the customer groups who suffer first in a credit squeeze which doesn’t seem logical or ethical.”
The FLA’s Haddrill also warned that urgent changes to the Consumer Credit Act were needed to allow swift help for consumers in financial difficulty.
He said that the Act requires formal and complex agreements to be signed and returned by customers in order to modify loans when they seek forbearance, which will put great pressure on lenders.
An “abruptly worded” letter called the Notice of Sum in Arrears will also be triggered when customers seek payment breaks in line with the CCA’s requirements, which will likely spark concern among borrowers, he said.
