Target Group has called on the Government to provide clearer guidance to lenders as the mortgage market weathers its worst storm since 2008.
Katie Pender, managing director at Target Group, said the current reliance on forbearance measures alone to help borrowers was “actually making things worse.”
She said: “The problem is that Jeremy Hunt’s plan is using short-term measures to deal with what is likely to be a mid-term problem.
“Forbearance is a short-term solution designed to meet issues such as a job loss or a change in circumstance.
“It is not a mid-term solution to systemic affordability issues triggered by rising interest rates.
“Overreliance on forbearance will come with a cost for the mortgage market as a whole and homeowners.
“Firstly, paying interest only will prolong the term of peoples’ mortgages, costing them a lot more over the long-term.
“Additionally, it will affect their credit score – therefore harming their future borrowing opportunities and exacerbating affordability shortfalls further.”
She added: “In some respects the market is in a Catch-22. Do we try to prevent repossessions, although it’s clear that many people will now not be able to afford their homes, or do we hurt homeowners further down the line by propping up arrangements that may actually be unsustainable?
“The Government needs to provide a clearer and more nuanced strategy, otherwise this problem will re-emerge.”
Target Group is working with lenders to help deliver lending services, including forbearance, and Pender believes it’s time to stop market watching.
“We can’t do a 90s style subsidy – the market is totally different now, she said.
“What’s needed is tax. No one wants to be paying tax, but to curb inflation we need to make people think twice about spending. In my view, this means taxing non-essentials, such as flights.
“Of course this is unfair on the aviation industry which is only just recovering from the crippling effects of the pandemic; but realistically we need to start somewhere and stop people spending. Surplus from this could then be used to help the very poorest keep their homes.”
She concluded: “We also need to discuss affordability stress-testing, as it’s clear that a lot of households have taken on eye-watering levels of debt, which is now really hurting them.
“After 2008 the industry learnt its lesson, but it’s time for another review – including looking at schemes such as Help to Buy where we’re encouraging people with little capital to take on alarming levels of debt. Watching and waiting is over. We need to act now to help protect the market.”
