The Mortgage Market Review quite rightly places responsibility on lenders to analyse the borrower’s ability to afford the mortgage payments before agreeing to lend. Some lenders have taken MMR very seriously and have devised unbelievably intimate lifestyle questions but to what end? Very few mortgage applicants will enter into a mortgage contract knowing that they are unable to afford their obligations and risk their home, deposit and reputation.
Any affordability check can only be a snapshot to conclude that the lender is satisfied that the applicant has sufficient income to afford the mortgage payments on application however in my experience, arrears usually begin as result of the borrower’s financial affairs going awry after completion of the loan be it illness, redundancy, marital or some other unforeseeable occurrence.
Responsible mortgage advisers will make sure that the applicant has protection cover to allow for unforeseen circumstances and lenders should treat such cover as an important part of their affordability analysis.
Things go wrong for many reasons but this is rarely obvious at the application stage. Whatever the cause it is difficult to imagine that a borrower learns he or she cannot pay on the day the payment is due. Good advice is that a borrower should contact the lender as soon as they are aware that the next payment due will not be made. A borrower with a good track record giving prior warning of their inability to make the next payment should reasonably expect a supportive and sympathetic attitude with help to solve the problem.
Supporting borrowers in arrears through no fault of their own is just as important as checking affordability before lending. However, all too often the borrower is subject to threats of repossession, reminders of their obligations, constant telephone harassment and even a charge (£35.00 is typical). Any amount of telephone calls will not make it possible for the borrower to pay if they are unable so to do! A caring, helpful attitude towards defaulting borrowers is an integral part of responsible lending. All too often lenders do not appreciate the difference between a borrower who cannot pay and a borrower who will not pay. The former requires help, the latter deserves pressure and both are entitled to courtesy and TCF.
Assistance is not merely allowing borrowers to miss a monthly payment. If they cannot pay this month, it is unlikely they can pay two months’ payment the following month. Neither is this responsibility fulfilled by advising the borrower to contact a debt counsellor who may cause further stress with chasing tactics and constant telephone calls asking the same questions!
Lenders should employ trained debt counsellors able to assess the borrower’s problem, offer advice in its solution and make suitable and sensible recommendations to both lender and borrower. This will allow the lender to remove the case from its delinquent list and the borrower to enjoy a good night’s sleep.
