Headwinds are blowing through the mortgage market. According to UK Finance earlier this year, there were 81,900 homeowner mortgages with arrears of 2.5% or more of the outstanding balance in the second quarter of 2023, which is 7% more than the same period last year.

This represented just under 1% of all homeowner mortgages outstanding in the second quarter of 2023. The value of outstanding mortgage balances with arrears increased to £16.9bn over the same period, according to the Bank of England’s quarterly survey of lenders, up 28.8% from the same time last year.

Few lenders anticipate anything other than an increase in mortgage arrears in 2024.

The signs of stress are visible and growing. Deposit outflows are at record highs with pandemic savings, much as they are in the US, diminishing as borrowers use resources to combat the cost-of-living squeeze or pay down debt. Say it quietly but some are already admitting off the record that arrears are now occurring on the low fixed rates that have not even moved onto the new higher variable rates.

Those borrowers coming out of short-term fixed rates into variable or higher fixed rates will present a different set of issues for lenders than the straight line from default to repossession of previous crises. The combination of higher mortgage payments and cost-of-living squeeze may mean that even those in secure employment can only meet part of their payments.

Lenders will need to be flexible and considerate in their forbearance approach and recognise that the Borrower’s difficulties may last over an extended period. Lenders need to start preparing for this future now.

What we do know is that there will be a noticeable increase in customer interaction through the entire arrears management process, and ultimately, and regrettably, in some circumstances, the legal actions leading to repossession. The Mortgage Charter, which allows a degree of self-diagnosis of borrower distress, will increase the need for clear and consistent communication.

Since the last time a large group of individuals found themselves in this type of financial stress, the idea of vulnerability has expanded to include a wider range of circumstances. We have also experienced a pandemic, the long-term effects of which include physical and mental health issues that are now experienced by many more borrowers.

Few lenders will have the kind of experience and expertise necessary to distinguish between what is true, authentic, and urgent from the less pressing. Our understanding of vulnerability and how we handle it has fundamentally changed.

Additionally, and understandably, few lenders have staff who are skilled in handling large-scale arrears and repossessions. For many personnel, the volume and stress of what may be coming will be unfamiliar.

As a result, many companies will be really concerned about the increased pressure and impact on the well-being of their employees, let alone on their customers.

In a competitive labour market, many lenders will have to reallocate their resources rather than make new hires.  Redistributing resources from within the company, however, will be risky for both the company and the chosen employees providing the service, given the new demands of dealing with these borrowers.

Although it would be easy to claim that we have been here before, we have not. This time, we will be under more scrutiny than ever on how we handle arrears, so now is not the moment to fall short of what authorities, colleagues and customers are expecting.

Simon Collingridge is managing director of UK Fortrum