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Educating borrowers about mortgage payment deferrals

Rob Clifford | Stonebridge
|
18th June 2020
Rob Clifford Stonebridge
"The knowledge of ‘Joe Public’ is unlikely to match the knowledge of those of you who do this day in, day out."

Dry-stone walling? Knitting? Origami?

What have you been doing with your time during lockdown? We have, of course, been fortunate in our industry in that, while clearly impacted, the doors were never completely closed, and therefore I expect the answer many of us are able to give is, “working, largely as usual”.

That said, personal development and learning new skills has been a focus for many during lockdown. Certainly, a number of advisers will not have been spared from furlough, and neither will a variety of staff who work in the financial services sector.

Working towards an industry-relevant or more obscure qualification, or developing a new skill might be a very good use of time and I suspect many advisers – and many personal finance stakeholders – might be hoping that large numbers of consumers are currently doing just that when it comes to their own financial position.

That need is perhaps greater than ever and the sooner we have a joined-up financial education programme that begins in school, the better. However, there is also a need for lifelong learning here and there’s no doubting that advisers play a major role, and the likelihood is, that requirement is only going to grow greater.

StepChange recently produced research on how individual finances might have changed throughout the pandemic period with it suggesting that affected adults will have accumulated an additional £1,000-plus of arrears and just shy of £1,000 of debt. It also estimates that 1.2 million people will have fallen behind on their utility bills, a further 820,000 people on their council tax and 590,000 are behind on their rent. Not great reading.

Borrowing will also have increased and it’s here that advisers can do what they do every day and do so well: evidencing the advantages, for many, of a remortgage over a credit card balance or unsecured loan, while examining just what has happened to their overall finances.

No doubt many consumers might have felt the need to make short-term decisions without being truly aware of the consequences. Take this as an example - I saw a TV segment with the Money Saving Expert himself, Martin Lewis, recently which focused on financial issues brought up as a result of the pandemic.

One customer phoned in to share her disgust that having taken a two-month payment holiday with her lender, she had recently learnt that her mortgage payments had increased for the rest of her term. It was a significant increase it must be said but then it was revealed that her mortgage ended in 12 months and those deferred payments would need to be collected over the next year.

Now, to those working within the mortgage industry, that will be completely obvious and there was some suggestion from the customer that this wasn’t sufficiently explained to her by the lender at the time: you may not be surprised to hear that.

However, what is quite patently obvious here, is that the knowledge of ‘Joe Public’ is unlikely to match the knowledge of those of you who do this day in, day out. I’m fully aware that there has been a big push to educate consumers about ‘mortgage payment holidays’ in recent months, but clearly that message has not reached everyone, not even those who have elected to take a ‘holiday’. Given she only had 14 months left on her mortgage, was it really the right option to take a ‘holiday’ in any case? I suspect if she’d discussed this with an adviser a different solution may have been proposed.

That said, perhaps we are not helping ourselves with the language the industry uses. A ‘holiday’ seems like a rather pleasant thing to take and might be construed as payments being made by the lender on your behalf. Far better perhaps to use language I recently saw from Foundation Home Loans – it talked about ‘mortgage payment deferrals’ which seems to make it clear that the deferral will need to be repaid whether in the form of larger monthly payments or an extension of the term.

In that sense, I think it’s possible to see that we as an industry have a serious job to do around financial education and explaining the reality of the situation to the millions of people across the country who may be unclear about the implications.

Consistent and meaningful consumer education will of course help in driving the benefits of advice but we also need to continue the great work many broker firms do, to promote the importance and value of our sector’s impartial and qualified advice.

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