It has been a long time since resource planning for a fast-growing arrears and repossession book has been top priority for mortgage lenders.
Indeed, this year started with one of the most benign arrears outlooks for over a decade, with repossessions only a couple of hundred a quarter.
But things were on the move even before the disastrous September mini-Budget delivered such a shock to the whole financial system.
UK Finance statistics for Q3, 2022, show a stable position of just under 75,000 homeowner mortgages in arrears but with repossessions in the quarter of 700, nearly double the number in the same quarter 2021.
Clearly, these figures are a far cry from the 20,000 plus repossessions a quarter seen in the early 1990s, and it is to be hoped that stress testing shows its worth as rate rises bite.
But all lenders will now be seeing the early warning signs of what is to come from the level of phone calls from concerned borrowers, not in trouble yet, but wanting to know what help will be forthcoming if and when they hit payment difficulties.
With the combined impact of the cost of living strain, the shock rise in mortgage interest rates and the OBR predicted rise in unemployment these difficulties are going to be real, not imagined.
The regulator has been ahead of the game – issuing a “Dear CEO” letter in mid-June entitled “The rising cost of living – acting now to support customers”, which was in response to the gradual rise in rates expected back then, well before the late summer madness.
What was important to the FCA then will be doubly so now, and expectations will be further heightened by the imminent implementation of the New Consumer Duty next year.
Repossession will never be a “good consumer outcome”, but the way in which lenders manage to avoid that outcome or progress towards it with humanity and empathy will be under scrutiny as never before.
Planning for this future should already be underway for lenders. Some of the largest have already announced the increased provisioning they are making to protect against mortgage defaults next year.
But all should be planning to handle major increases in customer contact, the full arrears management process and ultimately and unfortunately, for a number of cases, the legal steps leading to repossession.
Staff experience of mass arrears and repossessions will be in short supply within most lenders, but the recent implementation of processes for payment holidays during the pandemic will be useful.
For many lenders, this will entail resource re-allocation rather than new recruitment. Staff can be reallocated away from new business processing, where demand has dropped hugely – mortgage brokers reporting new mortgage applications running at around 40% to 50% of the pre-September levels – and towards call handling and arrears management.
The combination of this recent experience and the work that has gone into improving operational resilience over the last couple of years should stand the industry in good stead to meet this coming challenge.
But scrutiny there will be, and this will not be the time to fail to meet regulator and customer expectations.
Mark Davies is managing director of BCMGlobal
