Yahoo Finance Concern as thousands of mortgage borrowers fall into immediate financial difficulty
The City watchdog is taking a closer look at mortgage lenders who grant potentially unsuitable or unaffordable loans to their customers.
Data published by the Financial Conduct Authority (FCA) show that a small but significant number of mortgage borrowers fall into arrears almost immediately after taking out a loan, suggesting that the deal could have been unsuitable for their circumstances.
Three in every 1,000 new mortgage customers are unable to meet their monthly payments within six months of the loan being taken out. For some the problem is even more serious – one in every 600 loans falls into arrears by the point their second payment was due.
The regulator has highlighted this as an area of concern and said it would continue to monitor this issue. Industry observers said borrowers using automated “robo advice” services could be taking out mortgages without being fully aware of their ongoing commitments.
This could be an indicator of an unsuitable or unaffordable product having been sold
Financial Conduct Authority
Around 1.2 million mortgages were completed in 2017, according to UK Finance, the trade body, which means thousands of new borrowers fall immediately into arrears each year.
“Where a consumer falls into arrears within a short period of time (two to six months) this could be an indicator of an unsuitable or unaffordable product having been sold,” the watchdog said.
“We will continue to monitor this indicator in future because any sustained increases may indicate that we need to do more work to assess if the harm of unaffordable or unsuitable mortgage sales is increasing.”
John Phillips, of mortgage broker Just Mortgages, said affordability tests applied by banks should ensure that customers can meet the monthly payments.
“Short of that person losing their job or falling seriously ill there should be no reason for them to be unable to pay their mortgage in such a short period of time after taking out a mortgage,” he said.
Mr Phillips said he was concerned that the rise of automated online services could lead to an increase in unsuitable mortgages being sold.
“The more people that go for an automated ‘robo advice’ type system, the more this sort of issue is likely to occur,” he warned. “People are not always aware of the implications of the mortgage they are taking out and how it may affect their overall financial picture, until it is too late.”
Jonathan Harris, of mortgage brokers Anderson Harris, said he believed many of the cases would have involved unforeseen life events such as death, relationship breakdown or job loss.
