We have seen a flurry of activity from the FCA recently. They have published a statement on mortgage prisoners and launched a consultation which proposes ‘turning off’ affordability to allow intra-group remortgaging, as well as supporting interest-only maturity customers by extending the window in which they need to repay the outstanding capital balance, by a year in certain circumstances.
If we could turn back the clock to pre-Covid times, a cross section of mortgage lenders had expressed a strong desire either to utilise modified affordability or amend criteria to support mortgage prisoners. The onset of Covid has had a huge operational impact on mortgage lenders.
Over 1.8 million payment deferrals have been granted so far, putting a strain on existing lender resource and capacity.
The work of lenders in this space is by no means done, and the next phase of payment deferrals will arguably be the most resource hungry. Customers need to be transitioned off deferrals and where it is needed offered further forbearance, this will involve many detailed individual conversations.
Even against this extremely challenging set of circumstances I remain confident that building societies will provide solutions for many of those in need.
It is a very emotive subject, and at times it’s fair to say the realities of the situation have not been accepted by all the parties involved.
To this end we welcome the FCA statement on mortgage prisoners which includes a detailed analysis which concluded that the majority of ’mortgage prisoners’ are on a mortgage rate that is comparable to what they would qualify for in the open-market.
Of course there are customers who have rigorously maintained monthly payments and could achieve good per month savings by switching. These mortgage prisoners are precisely the ones that can be supported by ’modified affordability’.
We also welcome the support of the many mortgage intermediaries who responded to the FCA’s expression of interest to support mortgage prisoners.
I have said many times that intermediaries will play a crucial role in supporting mortgage prisoners, offering expert advice and sourcing the most appropriate solution.
I remain confident that intermediaries will be provided with enough lending options to ensure that those that would benefit from switching can do so.
Cladding
Following the Grenfell Tower tragedy, fire safety has rightly been at the top of the political agenda, with the Fire Safety Bill currently making its way through Parliament. But we need to recognise that the focus on cladding also raises risks for lenders, with a significant number of buildings likely to require the replacement of cladding, with costs potentially falling on leaseholders.
In late 2019 the BSA, UK Finance and the Royal Institution of Chartered Surveyors (RICS) – in consultation with many other industry professionals – launched the External Wall Fire Review process and accompanying EWS1 form.
The process provides consistency across the valuation and mortgage lending sector by enabling building owners to commission an assessment of the fire safety of a building’s external walls, in line with pre-existing government advice.
Since its launch, around 1,000 buildings have received signed EWS1 forms, enabling mortgages to proceed.
As the process is more widely adopted it will improve access to mortgage finance for affected leaseholders. However, as with any new process, it will inevitably take time to become embedded right across the industry.
While initially focussed on buildings over 18 metres tall, a government advice note released at the beginning of 2020 made it clear that many lower-rise buildings will also need cladding checked.
We were not consulted on this change and it has consequentially widened the scope of the EWS process considerably.
Previously lower-rise buildings would have only been included in the EWS process where ‘specific concerns’ exist, for example those with timber balconies.
However the change in government advice means that the EWS process must now be applied to many more low-rise, multiple occupancy properties with cladding, exacerbating already-apparent capacity issues.
To address this, and to enable the experts to better identify higher-risk taller buildings, we are working with RICS and UK Finance to better risk assess different types of buildings.
The aim is to identify which buildings are less likely to need cladding replaced due to factors such as building height and age. Feedback from the government’s own ‘risk prioritisation in existing buildings’ call for evidence earlier in the year should be released at the earliest opportunity to inform this exercise.
We are sympathetic to the owners of affected properties who have suffered frustration and lags in the process, however we see the EWS process as a part of the long-term solution for all involved.
Lenders also have a duty to prospective buyers who could otherwise face large future bills to replace cladding.
If government wants lenders to take on more risk by lending on these properties, the industry in turn needs the government to step up with better data on how many buildings might be affected, as well as greater transparency on the cost and pace of remediation.
Robin Fieth is CEO of the Building Societies Association (BSA)
