In addition to being sure of gainful employment over a term of 25 or 30 years, and even longer with 35-year mortgages becoming more common in the UK, homeowners also must navigate the risk of external pressures. Issues such as fluctuating interest rates, rocky financial markets and a spiralling cost of living crisis have become headline news in recent months, and painfully illustrate the tricky path that homeowners must navigate throughout the lifecycle of their mortgage agreement.  

This can cause high levels of stress for anyone – especially those deemed as being financially vulnerable, a sizeable group that the UK’s Financial Conduct Authority (FCA) is increasingly looking to protect.  

Back in February 2021, the FCA published its final guidance to clarify how it expects financial services firms to treat vulnerable customers. Mortgage providers have therefore had two-and-a-half years to ensure they have processes and systems in place to help those who might be deemed as financially vulnerable.  

While the UK’s banking sector perhaps provides the clearest example of the progress that has been made, especially with the latest digital technology powering online tools that help users keep track of their income and expenses and providing easy-to-use financial management tools, what about mortgage lenders? How can digital functionality help vulnerable customers when it comes to their mortgages? 

What is financial vulnerability? 

In its final guidance, the FCA states that some 27.7 million adults in the UK show characteristics of vulnerability such as poor health, experiencing negative life events, low financial resilience, or low capability. It also outlines that although not all people with these characteristics will suffer harm, they may limit people’s ability to make reasonable decisions or put them at greater risk of financial mis-selling.  

The guidance goes on to say that firms should understand what harm their customers are likely to be vulnerable to and ensure that customers in such circumstances receive the same fair treatment and outcomes as other customers. This needs to happen through the whole customer journey from product design through to customer engagement and communications. 

Mortgages and financial vulnerability 

We are all aware of the major issues being caused by fluctuating interest rates combined with a rapidly escalating cost-of-living crisis recently.  

Against such a backdrop is a worrying statistic from Experian which states that 17 per cent of people would struggle if their monthly mortgage or rent increased by less than £50. Although this piece of research is a few years old now, it serves as a useful, albeit painful, reminder that even minor fluctuations in expenditure can have serious implications for families, some of whom are now paying many hundreds more in repayments every month because of changing interest rates.  

In today’s ESG-focused world and against guidelines including Treating Customers Fairly (TCF) and the FCA’s guidance, mortgage providers need to show they are doing all that is possible to stop their customers falling into this trap. Technology can provide some perfect solutions for this. A sophisticated, interactive customer interface can provide useful tools such as pop-up chat bots or pre-populated data fields to ensure customers are getting quick decisions on the right products that will prevent vulnerability, because of the data population being more accurate and thorough. 

Furthermore, AI technologies could be used throughout customer modelling and affordability assessments to identify patterns and changes in financial behaviour that suggest a person may be experiencing, or at risk of, financial difficulties.  

Regulation 

Together with increased levels of regulation is a need for lenders to prove they have provided all the information needed by their customers, in a manner that they can easily digest.  

In short, with the memory of issues such as payment protection insurance crisis, this will mortgage providers prove that a customer has not been mis-sold a product.  

Against such a backdrop, online systems provide a thorough, yet streamlined process to enable lenders to prove they have ticked the boxes when it comes to regulatory functionality. They allow the customer more time to review the agreement details, often in the comfort of their own home, allowing them to carefully weigh up all implications of entering into the agreement, proving that the stringent Treating Customers Fairly (TCF) guidelines have been met, together with the FCA’s guidance. Such proof is vital when it comes to dealing with vulnerable customers. All evidence can be given to regulatory authorities if needed, certainly far easier than if an agreement has been verbally explained in the minutes before a customer signs on the dotted line in a busy office environment. 

Benefits for the customer 

When it comes to the customer, the key thing is that a good online offering can provide the tools to service their agreements and gives them ownership over their financial affairs. It gives them choices, and it provides them with the information they need at their fingertips to make an informed decision, in much the same way they take for granted when it comes to taking out a new savings account, loan or insurance policy.  

Tools such as an online calculator, case studies drawn from a cross-section of the population, interactive chat systems, a sophisticated reference library and the ability to seamlessly transfer to a call-centre, will allow everyone – not just the financially vulnerable, but all mortgage clients – the ability to take full control and ownership of their future mortgage journey. For those who might fall into the vulnerable category, it will be important to show they have the access to advice in the manner they prefer, be it online, over the telephone or face to face, something that can easily be designed through a modern online interface.  

This is especially true when a fixed-rate term comes to an end. An interactive portal will enable them to search all future options from their current provider, and even competitors. It will show them that their provider provides a sophisticated customer service journey and is a provider that has their best interests at heart.  

As we have stated before, let’s not forget that customers’ expectations remain high, and are set to grow further, due to everyone from their banking providers to Amazon investing in a seamless online offering. There is absolutely no reason why mortgage lenders cannot equal these systems – and even lead the way.  

Conclusion 

With the FCA stating that over 27 million people in the UK show some form of financial vulnerability, it is essential for mortgage lenders to do all they can to help address this.  

While online banking arguably leads the way, digital channels can easily be applied to the mortgage sector. This will benefit the customer and the provider alike and will provide the regulator with important proof that all requirements have been adhered to throughout the entire process, from viewing the agreement to formally agreeing to it. During the current time of economic instability and a seemingly never-ending cost of living crisis, such systems will provide essential support to both customer and lender alike.  

 Jerry Young is chief executive of ieDigital