As we make our way through 2022 and following my “Only certainty is uncertainty” article last month, I think it’s fair to say, with some certainty, further base rate increases are on the horizon.
December’s rise was swiftly followed by another in February taking the rate to 0.5%. There is likely to be one more at least, perhaps even two or heaven forbid, three?
If you overlay these potential rate increases with inflation and the cost of living rising exponentially, plus tax hikes, then arrears and challenging times could well materialise in the second half of this year.
What impact will this have on existing customers, and potential new customers looking to borrow or service their debts? And how will it affect the variety of financial institutions, large and small, across the mortgage spectrum?
Equally, as our customers face challenges, what does that mean for lenders’ operational areas that have not had to deal with potential large-scale delinquencies since the fallout from the global financial crisis. That was the last time arrears were high peaking in 2009. Have lenders’ processes, systems and approaches been stress tested for what might materialise?
Now clearly at this stage I’m not seeking to be the doomsayer nor wishing ill on institutions or cohorts of customers for that matter. I am merely giving a nod to the future and how and what organisations need to consider.
Technology has moved on since previous downturns
Looking at toolsets, processes and automation, do lenders have the ability to build new capabilities within their servicing approach that did not necessarily exist in previous downturns?
Whether that be open banking to support income and expenditure procedures or automated abilities to record and deal appropriately via workflow for genuinely vulnerable customers.
There are now work queue assignments for experienced colleagues to deal with more complex and sensitive cases and contact strategies have evolved using differing mediums and social media channels.
We also have complete automation in loan modifications and workout strategies depending on where in the credit curve institutions find themselves.
Whilst far from an exhaustive list, hopefully this demonstrates a number of considerations that operations teams up and down the land will be reviewing to see if their ecosystem of providers and partners can help facilitate this.
Again, this goes to reiterate my previous belief that having the right relationships and broader ecosystems can help institutions not only grow in positive times, but also provide that additional support, strategy and swift ability to change course in challenging times.
Not only will these challenges potentially lead to increased operational work, but also potentially an increased activity in book sales, outsourcing and perhaps M&A activity.
Potential arrears issues
During the early stages of Covid 19 and lockdowns things were tough, with the varying government support instruments of furlough and payment holidays as examples of vital financial support. Arrears figures had been going down a little but long-term arrears of 10% or more of the mortgage balance have been rising each quarter since Q4 2019.
These government support schemes used extensively by consumers are no longer available and as we move through this year, I fear more people are going to struggle.
To finish on a more positive note and pick back up on a point I’ve made previously, our industry is adept at rolling with the punches, preparing and reacting well to challenges. I believe those lenders who have well-established partnerships with broader ecosystems and the ability to tap into new skills, tools and approaches will likely be more successful than those without.
Adam Oldfield is head of sales and account management at Phoebus Software
