The £4.5bn question over forbearance

Credit Strategy has discovered that three out of five major UK banks are sitting on £4.5bn of mortgage debt in forbearance: Lloyd’s Bank, Barclays, and Santander.

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As repossessions fall, Amber-Ainsley Pritchard compares impairment figures across the biggest lenders, and asks if banks’ litigation activity will fall further.


The half-year mark has come and gone, payday lenders have been banned, banks are under investigation and a new chief executive is settling in at the regulator.


Mid-summer is also the point at which high-street lenders publish their six-month trading updates. They show sizeable levels of mortgage debt subject to forbearance schemes – probably something that hasn’t gone unnoticed by the regulator.


In fact, the Financial Conduct Authority’s former acting chief executive, Tracey McDermott, told delegates at our Credit Summit in spring that the regulator is “just as concerned about over forbearance as much as under forbearance”.


Where possible Credit Strategy has collated the same sets of figures from the lenders to compare impairment figures and levels of debt in forbearance.

Despite forbearance figures showing a year-on-year decrease across all banks, three of the main contenders racked up a combined total of £4.5bn of mortgages in forbearance schemes.


Lloyds Banking Group revealed that it has £2.5bn of loans in forbearance for the first six months of 2016.


The figure is made up in part of £2.2bn of secured loans which are subject to repair and term extensions and £333m of loans with reduced payment arrangements.


As of December 31 2015, the bank had £3.7bn of secured loans in forbearance schemes. This means that according to the bank’s own results, the value of its secured loans in forbearance fell by around £1.2bn in just six months – January to June this year.


In the banks half year trading update it said the reduction in forbearance was due to the overall improvement of credit quality in its portfolios.


The first half of 2016 results show that the value of Lloyds mortgages which are greater than three months in arrears (excluding repossessions) decreased by £19m over the first half of 2016, to £5.88bn.


Although Lloyds forbearance figures were notably high, the market was surprised to find that the FCA had opened an investigation into the group’s handling of mortgage arrears.


The bank appeared to have decreased the level of its litigation activity for mortgage debt recovery in the past two years.


This could be related to a general, more long-term decrease in mortgage arrears levels as a result of an improved economic environment for Lloyds’s customers.


This chimes with the experiences of competitors. Barclays UK’s forbearance balances fell six percent to £971m following continued improvement in card and mortgage portfolios driven by “the benign economic environment”.


During the first half of 2016, Santander recorded £153bn of residential mortgages on its loan book, £1.9bn of which are mortgages in forbearance. This figure is down by 50 percent, from £3.8bn, for the same period last year.


See Credit Strategy’s October issue for the full article on p10.

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