Banks must play their part on mortgages

YESTERDAY afternoon’s speech by the Financial Regulator Matthew Elderfield, and his earlier meeting with lenders where he warned about the imposition of further interest rate increases, leaves the banks in no doubt about what is expected of them in resolving the growing mortgage crisis.

They have been told to put the big stick away, to be patient and respectful of their customers’ difficulties. They have been told in the clearest terms that there are interests other than theirs at stake in this crisis.

Borrowers who are unable, or may become unable, to meet their obligations now know what is expected of them too.

They know that a precise process exists to support their efforts to stay in their homes except in the most extreme, irretrievable circumstances. They have been assured that if they play their part a compromise might be reached. A resolution process has been defined and even if it is not perfect — how could it be? — it is at least structured and offers the prospect of rearranging borrowings to meet new circumstances.

And how challenging these new circumstances are.

Loans in arrears of over 90 days more than doubled from 3.3% in September 2009 to 7.2% in June 2011. This startling jump may not be the full picture though, as it does not include mortgages taken out by those who bought investment properties for the rental market.

Earlier this week Mr Elderfield wondered aloud if interest rate increases, imposed by banks trying to make good huge losses on tracker mortgages, had contributed to this spiral. It is impossible to see how they have not, or to pretend that rate increases have not been counterproductive by pushing some of the one-in-four mortgage holders on variable rates over the very fine line between possibility and insolvency.

On this issue Mr Elderfield was firm and unambiguous. He said he’s “breathing down the necks” of lenders on their handling of mortgage arrears. If banks “persist” in raising variable interest rates, they risk a cap on rates being introduced, he warned.

Mr Elderfield’s was not the only voice offering suggestions yesterday about how we might face the future. A new Organisation for Economic Co-operation and Development report argued that Government should reduce unemployment payments the longer a person is out of work and that welfare support be linked to the acceptance of training offers. It also expressed the view that teachers’ performance be subject to systematic evaluation.

Imposing any of these measures will require the kind of fortitude not always apparent in our public life. The usual powerful voices will probably assert their sectional interests and experience suggests a less than satisfactory outcome for society at large.

However, that challenge pales into insignificance by the ultimatum given to the banks by Mr Elderfield. He has taken on institutions that have lied to Government with impunity and they must be made aware that their co-operation is not optional. In so many ways this is a do-or-die issue for this society; it certainly is one for this Government and the thousands of mortgage holders in real difficulties.