That is the type of question British banks are asking as they try to work out whether borrowers owing about £75bn in home loans will be good for it when a payment holiday, introduced when the coronavirus crisis first hit, ends.
The stakes are high: underestimate the risks and bank bosses and shareholders could be in for a nasty jump in losses; overestimate them and banks could rein in lending when it is needed most. About £300bn in payment breaks was granted on British mortgages, part of a series of measures aimed at propping up households hit by the virus, and about 70-80% of those have resumed payments, bankers and analysts said.
“We’ve seen very little so far in terms of actual defaults, whereas the models would’ve predicted a big hit following the recent economic dip, so the question is whether government support schemes are merely delaying the problem or actually mitigating it,” Waymark said. The pressure to understand the risks has meant banks in Britain are using data and technology in new ways and at a greater level of intensity than before, something that could be useful for modelling other unpredictable threats, such as climate change, says Rishi Khosla, CEO of OakNorth bank, which markets its portfolio diagnostics technology to other lenders.
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