British banks granted a higher proportion of payment holidays, as a percentage of loans, than most other banks in Europe during the coronavirus pandemic, but those moratoria have now declined sharply.
Lloyds Banking Group PLC peaked at 14% and NatWest Group PLC at around 9%, said Fahed Kunwar, analyst at stock research firm Redburn, noting that UK banks tended to have a higher proportion of mortgages. against their entire loan stack. . The European Banking Authority said this week that in June around 6% of total bank loans and nearly 7.5% of total loans to households and non-financial corporations were placed on moratorium. on loan repayments – a nominal loan value of € 871 billion.
“Payment holidays in the UK have fallen by more than two-thirds since March,” Kunwar said. “Mortgage payment holidays have fallen the most, in part because many mortgage clients were just cautious,” Kunwar said.
At NatWest, initial mortgage vacancies fell from £ 33.6 billion in mortgages, or 22% of the portfolio, to £ 21.3 billion at the end of June and to £ 6.2 billion, or 4% of the pound, at the end of September. CEO Alison Rose said 85% of mortgage vacations are now over.
“The number of clients taking mortgage repayment holidays has been steadily declining and trends suggest they acted out of caution at the start of the pandemic rather than out of need,” she said.
Amid the confusion surrounding COVID-19 in the UK in March this year, customers took the risk of a payment holiday for fear of worsening economic conditions to come, Shore analyst Gary Greenwood said. Capital.
“It was largely opportunistic – people were panicking, they didn’t know what was going on. But I think a lot of people saw it as a ‘gift’ and didn’t necessarily realize that it wasn’t. was not the case, “he said.
Certainly, mortgagees who take payment holidays will have their demands reflected in their credit reports, which could affect their creditworthiness. This is despite the fact that the government and the Financial Conduct Authority initially told consumers that a payment holiday would not affect their credit scores, which would affect eligibility for future loans.
“The vast majority of people at the end of their payment holidays have started paying again. Throughout the third quarter, banks reported that the underlying defaults were fairly mild, if not improving slightly,” Greenwood said. .
He noted that there has not yet been a significant rise in unemployment since the government’s employment support program was extended from its original deadline of late October. The mortgage holidays were also due to end on that date, but were also extended by six months.
“There is no evidence from the banks that when this program was originally scheduled to end in October, people were starting to take it over,” Greenwood said.
Lloyds CFO William Chalmers said more than 80% of customers who took an initial payment holiday are now repaying, up from around 70% in the half-year. In total, at Lloyds, payment holidays have been granted on around £ 69bn in retail loans, but the bank has less than £ 15bn, while payment has been missed on around £ 2.4bn. in sterling loans.
“Our mortgage payment holiday market share is now less than our natural market share; around 30% of extended mortgage payment holidays have also expired with around 90% resuming payments,” he said at the meeting. ‘a call for third quarter results.
Lloyds said about 35% of unpaid payment holidays are already in Stage 2 depreciation, where the expected lifetime credit loss is recognized. Chalmers said moving the remaining extension population of all assets to Stage 2 would generate an additional expected credit loss of less than £ 100million.
Lloyds said he sees a similar picture on SME capital repayment holidays, where in all cases over 90% are secured loans.
Arrears are “low” at just under 4% of overdue payment holidays, which includes first missed payments, Chalmers said.
Barclays, HSBC, Santander
Barclays PLC said outstanding mortgage payment holiday balances stood at £ 4.4bn, or 3% of its mortgage balance sheet exposure of £ 145bn, with an average loan-to-value ratio of 63%. Mortgage holidays were granted for 123,000 accounts, but in September the outstanding balances at the bank were 79% lower than the May high.
“It’s not really a credit issue for us, I think at this point, unless that changes, of course, but I think it’s largely behind us,” said Tushar Morzaria, CFO. of the Barclays group, in the third quarter results.
Noel Quinn, CEO of HSBC Holdings PLC, said borrowers returned to full payment faster than expected.
“Some government plans have been canceled, payment holidays have been canceled,” he said when releasing third quarter results. “We’re seeing better performance on this unwinding of government programs than we previously modeled or predicted, and people are reverting to normal payment patterns at a higher percentage than we originally modeled. “
Santander UK PLC has granted more than 340,000 payment holidays on mortgages, loans and credit cards and said 3% of loans were in arrears after the payment holidays ended. It has granted 244,000 mortgage payment holidays on loans totaling £ 37.1bn, including £ 4.8bn in loans with payment holidays still outstanding and 1% of new customers overdue after completion of their payment holiday.
A borrower who had not taken a payment holiday before is unlikely to take one now, said Kunwar of Redburn.
“I think the risk of a tail that was there from those really pretty big numbers has… gone down,” he said.