Since 2007 and 2008, our sector has not really endured a period of sustained and significant arrears. Successive generations of managers within lenders have not had to deal with any kind of market downturn without major assistance from the government in the shape of furloughs or deferred payment plans. Arrears are now front of mind, though for a while they haven’t really been a big problem. However, there have been major changes in what is anticipated of lenders. Having access to the right corporate support to help administer the right course of action will become increasingly important as lenders rush to upskill and reallocate current resources to address these issues. The element of operational delivery represents a real area of risks for lenders – increasingly so over the coming year. The environment is getting harder. Mortgage balances in arrears rose by 13% in the second quarter of this year to reach their highest level since 2016, according to Bank of England statistics. This shows the strain on the UK mortgage market. Rising interest rates and unemployment have recently decreased household disposable income, which has led to some households reducing their mortgage payments particularly where borrowers are moving off previously very low fixed rates onto new products. Pressure has also been put on buy-to-let mortgage holders in areas of the country where tenants are struggling with cost-of-living issues. But the risk for lenders is not simply in the balance sheet. What about the people who work nonstop to assist troubled borrowers? Do they have the knowledge, experience, and preparation necessary to recognise and manage the increasing scope of borrower vulnerability? In 2010, the first study of its kind researched the experiences, practises, and challenges faced by debt collection agency staff when working with debtors. It was motivated at the time by an industry commitment to look into the most efficient ways to serve these customers. Even while frontline and specialist debt management experts are not doctors, counsellors, or an NHS hotline, a follow-up study conducted in 2017 revealed that they still need to know what questions to ask and how to react to the myriad factors that can make a customer vulnerable. Knowing what questions to ask and how to use the information is critical if they’re not to make the situation worse. A crucial piece of information can help with successful mitigation, identify, predict, and manage problems, as well as properly escalate any clients with complex needs to a colleague with specialised knowledge or to seek assistance from outside organisations. The slew of regulatory outputs about vulnerability, from Borrowers in Financial Difficulty to Consumer Duty and much more, mean that the challenges for lenders and their front-line staff have exponentially grown. The credit cycle is turning, and a prolonged period of higher, more normal interest rates mean many borrowers will be struggling. If they then fall into the ever-broadening category of ‘being vulnerable’, having partners who can mitigate this risk will be essential.

Simon Collingridge, Managing Director UK