Three key challenges mortgage lenders are facing – and how to tackle them

Mortgage lenders can better support customers through the current cost-of-living crisis by using data and digital channels which can identify the vulnerable early, help personalise solutions and ease the increase in demand.

There is no denying it: we’re currently in the midst of a mortgage shock.

In September, the market went into chaos, with hundreds of mortgage products retracted by lenders and interest rates sent sky rocketing. UK homeowners, who over the past 15 years had seen nothing but low interest rates, are now facing a huge repayments hike. Added to this, UK house prices have risen by more than two-thirds over the past decade, with the most significant increase seen in the past 12 months.

And it’s going to get worse before it gets better. The perfect storm of recent events – Brexit, Covid-19, the war on Ukraine, the ‘mini Budget’ – is affecting everybody. It's not just the people who were already vulnerable, it’s those who have never before been in such a difficult position. Energy has gone up, food's gone up, petrol's gone up – everything has gone up.

Mortgage lenders are facing a multitude of challenges, as they seek to help customers who are under enormous strain while still doing what is best for their business. The FCA’s Vulnerable Customer Guidance sets out the regulator’s view of what firms should do to comply with their obligations under its principles and to ensure they treat customers in vulnerable circumstances fairly; here, I’ve identified three of the biggest challenges lenders are facing and some ways that they can confront them.

1. Identify problems early

Evidence suggests that different demographics experience differential effects; lenders can therefore use analytics tools to predict whether someone’s circumstances are likely to lead them into a state of vulnerability. This means that the lender can start to look into proactive reach-out campaigns, whether this is via targeted communications or a prompt when the customer logs onto their website – messaging along the lines of “get help with your finances here”.

Furthermore, it won’t be controversial to say that the traditional method of a customer filling in an income expenditure form is flawed. They are likely to forget things, and so inadvertently not end up giving the full picture. The wider transparency of open banking, however, can help put lenders in a stronger position to properly advise the customer.

Once someone has actually got in touch with the lender to speak about their repayment difficulties or worries about rate rises, speech analytics tools can pull out key words from what the customer says, and even their tone of voice, flagging to the call centre employee that this person could be classed as vulnerable. In addition, these tools can advise the agent on the best course of action to now take. This isn’t replacing the need for training for frontline colleagues to be able to handle these more delicate calls; rather, it’s to assist the agents in achieving the best outcomes for customers. Some lenders find it faster and more efficient to outsource this resource to teams who have already mastered these complex skills.

It's not always necessary for a customer to speak to another human being – the key is being able to identify when this approach is needed and when it isn’t, then either staying with an automated process, such as chatbots, or putting the customer through to a call centre agent. And using open banking, customers can use a calculator to verify their exact situation at the start of their customer journey, so that when they are connected to another person, the agent already has all their information to hand. This can help to reduce time spent collating information, the process of which may be awkward, painful or just plain embarrassing for the customer.

2. Provide personalised solutions

Lenders have to take a personalised approach to their customers’ difficulties; one-size-fits-all will simply not do. Once they have been able to gather the data that they need to identify the customer’s situation, the lender can start tailoring a solution.

It could be a temporary flip to an interest-only mortgage, or ‘part-and-part’ – in most cases, this is certainly a better option than a mortgage holiday, which was suitable as a short-term move during the peak of the Covid-19 pandemic, but which would not generally be practical right now when we have potentially years of hardship to come. Another option could be extending the term of the mortgage. Or, in extreme cases, could the lender even cut rates temporarily, as unpalatable as that may be to them? By using the data they have and creating personalised solutions, lenders can find ways that are tailored for each individual.

3. Coping with an influx of calls

Another reason mortgage lenders must really understand their customers’ situations and take advantage of technology is that not only is the severity of borrowers’ situations getting worse, the number of people who are struggling is likely to rise. That means an influx of contact coming into lenders, especially when fixed rates come to an end.

So how can lenders cope with this spike in demand? For some, the solution is to outsource some of their credit management – whether that’s for early-stage collections, or the call centre itself. Nationwide, on the other hand, has opened a dedicated cost-of-living helpline, where the building society “ensures that all frontline colleagues receive training to provide additional cost-of-living help for members”.

Having a dedicated line, or at least a specialist team, is a really good idea because it means lenders are creating a safe space for people to talk, and they can train their people with the right empathetic skills and strategies – as well as supplying them with the right tech. This tech could include assisted customer conversations: AI-driven technology that analyses a call and automatically helps the agent identify the best solutions to the customer’s queries.

Being able to separate out customers who need this level of attention means lenders can also help other customers to better self-serve, when they have day-to-day issues and questions that do not need a human to perform. This will cut down on wait times for the people who really must speak to another human being.

4. Lenders must act now

You don’t need me to tell you that things are supremely difficult for us all right now. And it's certainly not going to go away overnight; realistically, we’re looking at two years until the situation starts to truly settle down.

Mortgage customers can’t just wait it out and hope that all will be better soon, and lenders can’t afford to not take evasive action right now. But the good news is, it is in lenders’ hands to seek out the kinds of solutions that will help them to make the best out of a challenging situation – so don’t delay.

If you would like any further information on the tools discussed in this article, please feel free to reach out to me: sarah.green2@capita.com