Increased lender forebearance could be storing up trouble for British lenders because borrowers who are in trouble are not showing up as being in arrears, credit rating agency Moody’s has said.
The practice whereby banks allow borrowers to extend their repayment periods, or give them a holiday on interest payments, is a ‘credit negative’, says the agency’s report.
But banks do not publish numbers of borrowers to whom they are showing forebearance.
Elizabeth Rudman, a senior credit officer at Moody’s said: “There is still high indebtedness on mortgages and there is potential for more borrowers to get into difficulty.
“As the forebearance numbers are aggregated, it is hard to know the scale of the issue for any individual bank, but it is a concern.”
A ‘risk outlook’ report by the FSA last week drew attention to the same issue.
For every UK mortgage borrower in arrears, two are subject to some kind of forebearance process.
The FSA said this was a factor in keeping arrears rates down, and that there were strong incentives for banks to avoid repossessions.
Moody’s believes that house prices will fall and interest rates will rise, resulting in borrowers who have mortgages in forebearance defaulting again.
The report says: “As such, banks choosing the forebearance option may be delaying the inevitable recognition of higher losses owing to foreclosures.”
Comments
Tick, Tick, Tick, BOOM!!!!
House price collapse on the horizon and more bank bailouts.
Lenders' forebearance (as encouraged by FSA) and ZIRP have only served to stave-off the inevitable for a little longer. True, house prices have gained ground since the lows of 2008/09 but it's a recovery built on very shaky foundations.
"Moody’s believes that house prices will fall and interest rates will rise, resulting in borrowers who have mortgages in forebearance defaulting again".
Trying to be positive and put a brave face on...... I think this is correct. Some parts of the country are looking at the obvious with their heads buried deep in a bucket of sand, sorry to say. They aren't moving with sales, so something has to give as less and less is going into everyones pockets?