Introducer Today, Harvey Jones, 23rd April 2013

The importance of lenders doing regular stress tests on all individual mortgage borrowers should not be underestimated, an industry figure has said.

Alex Maddox, director at Acenden, a mortgage servicer, said that the latest research by credit ratings agency Moody’s should ring alarm bells throughout the industry.

According to Moody’s, a large number of over 60-year-olds have interest-only mortgages which were agreed before the crash and which are now coming to an end, with no repayment plans.

Maddox said: “Moody’s estimation that 75% of mortgage borrowers aged 60-plus have an interest-only loan, compared to 42% of younger borrowers, should be an alarming number for the industry.

“If you also consider that 38% of all interest-only loans to the over-60s must be fully repaid within the next four years, then there is a real concern that, come the end of these agreements, lenders will be faced with some very difficult decisions.
 
“The estimation that the average outstanding mortgage balance for older borrowers is £70,000, whether true or not, gives some indication of the capital borrowers will need to clear their debt when the agreement matures. It may be that the majority of these customers will need to sell their properties to repay such an amount.

“For some borrowers the downsizing will be planned, but for others it will be a big upheaval.
 
“Stress-testing mortgage portfolios is always prudent for lenders, especially when future economic growth is uncertain. The ability to model the impact of base rate changes, rises in unemployment and variability in house prices gives lenders a clear understanding of which loans are most likely to experience problems.

“It is key to do this at the loan level, not a portfolio level.”