Protecting vulnerable customers in the mortgage market was a focus for advisers well before Covid-19.

However, in the FCA’s 2020 Financial Lives survey (which was carried out in the months before Covid-19) just under half (46 per cent) of UK adults display one or more characteristics that fall under the four drivers of vulnerability.

That is a surprisingly high number even before lockdown, and we expect that the number of vulnerable customers will now be rising due to the impact of the pandemic.

Understanding the challenges facing vulnerable customers and updating our processes to support vulnerable customers in the era of Covid-19 is a key challenge for the mortgage market – but we need to make every effort to support this group of customers through these difficult times.

Who is considered a vulnerable customer?

According to the FCA, a vulnerable customer is “someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.”

There are four key drivers which may increase the risk of vulnerability:

• Health: health conditions or illnesses that affect the ability to carry out day-to-day tasks
• Life events: major life events such as bereavement, job loss or relationship breakdown
• Resilience: low ability to withstand financial or emotional shocks
• Capability: low knowledge of financial matters or low confidence in managing money (financial capability). Low capability in other relevant areas such as literacy or digital skills

Vulnerability and advisors

My first question for advisers is simple: Are you aware that half of your customers could be considered vulnerable? For many advisers this could be a revelation. My second question to advisers is: Do you think that your current policies and processes are sufficient to address vulnerability in the Covid-19 era?

Advisers will already be making sure that customers continue to be treated fairly. Most advisers also do a great job ensuring their customers have access to mortgage advice that is balanced and in the best interest of the customer long-term – advice which recognises the needs of vulnerable customers, especially now with all the challenges facing us.

However, these latest findings from the FCA raise the question of whether firms also need to review existing practices and step them up as required based on the new FCA guidelines. Advisers need to have the proper processes and training to recognise and respond to a range of characteristics of vulnerability and how they can meet their needs through the customer service they provide.

We hear from advisers that they want to get this right. That is a positive step and with the additional complexities brought on by the pandemic, it’s a good idea to revisit these principles to ensure we are all prepared.

Vulnerability and lenders

This isn’t just a challenge facing advisers, either. Lenders too will need to take on board these findings, particularly as more customers are likely to now classed as vulnerable since the onset of Covid-19. My question I want to put to them is: How are lenders responding to these latest findings?

Lenders will already be thinking about the needs of vulnerable people through all stages of their product design process, but as yet it’s unclear how they will respond to the FCA’s latest guidelines. Are they, for instance, treating customers (new or old) on furlough as vulnerable? And when it comes to changes to product criteria, how are lenders ensuring that vulnerable customers are not caught up in product withdrawals?

In my view, communication from lenders as to how they how are reacting and what they are doing differently will be vital. With the hundreds of criteria changes we are seeing each week in the mortgage market, this needs to include giving ample forewarning to advisers, and by extension their customers, of any impending product changes. Communication within the sector is absolutely key.

Conclusion

At Legal & General Mortgage Club we want to help our colleagues understand the changes we are seeing in the market and drive positive messages about the sector – and there is definitely plenty to be positive about. We are seeing unprecedented demand from buyers who are looking to press ahead with their housing plans post-lockdown.

Considering and understanding the needs of vulnerable customers during the Covid-19 era and updating processes and staff training will be key.

And as always, we want to emphasise the hugely valuable role advisers play for borrowers, guiding them towards the right options and helping them to navigate the uncertain times we find ourselves in. By addressing the inequalities vulnerable groups face within the mortgage market, we can only improve the level of service and solutions we provide.

Kevin Roberts, Director, Legal & General Mortgage Club