The industry is bracing itself against the prospect that thousands of mortgage holders will emerge from government furlough schemes in September as vulnerable clients due to the pandemic.

“We have Covid, we have people coming off mortgage holidays and a number of people coming off furlough in September. We are going to have people moving into that vulnerable client regime,” said St James’s Place which hosted its Mortgage Conference 2021 session on this subject on Thursday (10 June).

There are still 3.4m furloughed jobs, according to HMRC data released earlier this month.

Last month the FCA published a consultation paper on new proposals to set financial firms a Consumer Duty, “that would set higher expectations for the standard of care that firms provide to consumers”.

This follows specific FCA guidance on vulnerable customers in February where the watchdog set out the skills and monitoring it expects from financial firms dealing with people in this category.

The watchdog said: “All customers are at risk of becoming vulnerable, but this risk is increased by having characteristics of vulnerability. These could be poor health, such as cognitive impairment, life events such as new caring responsibilities, low resilience to cope with financial or emotional shocks and low capability, such as poor literacy or numeracy skills.”

The regulator said that 53% of adults have displayed at least one characteristic of vulnerability during the health crisis, according to its Financial Lives Coronavirus Panel survey last October, an increase of over 3 million since February 2020.

Legal & General Mortgage Club head of lender relationships Danny Belton told the conference the broker is the first point of contact with a vulnerable client for the whole of the industry.

Belton said: “It’s the broker on the frontline who will be the best at understanding what the customer is feeling from a mental perspective, or general wellbeing. And whether they are vulnerable or not.”

Association of Mortgage Intermediaries chief executive Robert Sinclair brought up the problem of brokers applying for loans on behalf of clients who work in industries that have been hit hardest by the pandemic such as the restaurant or entertainment industry.

He argued lenders should be clear whether rejected clients in this situation did not meet the criteria, or whether the institution is already carrying too much risk from loans from troubled sectors on its books.

Sinclair said: “Making that transparent to us as broker partners is essential. They should not hide behind that fact, by saying the client simply didn’t meet the score.”

Aldermore head of mortgage distribution Jon Cooper said: “We have seen lender’s scorecards tighten. We have seen more declines come our way, which drives increased call volumes and complexities.

“We have three simple rules when trying to support a customer.

“What’s the sector impact? Is it recovering? How slow? How quick?

“What’s the future income level? If they have taken furlough, that’s fine, but are they back to their normal income levels.

“And what’s the sustainability of that income?

“Those three areas are what the underwriter will step back, look at, and say ‘yes’ or ‘no’.”

However, lenders are more upbeat about homeowners coming off mortgage holidays.

Hodge Bank director of business development Emma Graham said around 17% of mortgage holders took advantage of mortgage holidays last year, and currently “around 8 in 10 are pretty much back on track”.

Graham added: “Some mortgage owners took advantage of the payment holiday and probably didn’t need to. Last year there was a lot of distress and a lot of unease. A lot of people adopted the attitude, ‘better to be safe than sorry’.”

Belton agreed: “On mortgage holidays, the number of customers that have returned to payment, and the number of customers that need help is very small in the scheme of things.

“It is probably not too far out of kilter to what lender would normally see, in terms of customers that would need support through difficulties.”