Firms must be able to show the steps taken to identify vulnerabilities and how they modified their approach.
But vulnerability is a broad category, encompassing physical disabilities, mental health, cognitive disorders, financial difficulties, capacity and accessibility. Against a backdrop of dramatic levels of bereavement, job losses, fraud, economic abuse and long Covid, it’s a significant challenge for mortgage lenders and brokers.
The industry must focus on creating an environment that allows and enables disclosure, giving the vulnerable confidence to voice their vulnerability. But, according to the FCA, the industry faces low levels of trust and confidence, particularly from people with characteristics of vulnerability.
Credit fears
The reasons? Fear that any disclosure will appear on their credit file and harm future applications. Many believe attitudes towards mental health issues are still negative and disclosure will go against them. Others have had negative previous experiences of disclosing to a firm or are unaware of the relevance of sharing it with providers. To move forward, providers must consider these five factors.
Earliest possible engagement: Some vulnerabilities may come to light during a broker’s initial fact finding process, but asking specific questions about individual needs in the very first engagement, for example choice of communication channels, can lead to the opportunity to ask more appropriate questions and enable the right resources to be deployed.
Better understanding: Research into different conditions and how they impact a person’s ability to manage life and money is vital before any engagement. Charities are a valuable resource for creating a better understanding of vulnerabilities and how to engage, from board level to frontline staff. The Need To Know Guide by Money Advice Trust and the Money and Mental Health Policy Institute outlines useful standards that mortgage brokers and lenders can adopt.
Product design: Vulnerability should be a focus at the point of product design. During the length of a mortgage, a person will experience at least one life event, financial shock or health problem that could make them vulnerable. Factoring in flexible features, such as temporary payment holidays, demonstrates a focus on vulnerability.
Positives of disclosure: While staff must be trained to spot, probe and encourage disclosure of vulnerabilities, a focus on helping people see disclosure as a positive action, rather than one with negative consequences is vital.
Third parties: Vulnerability can impact borrowers at either end of the mortgage lifecycle and at any point. External databases, such as the Vulnerability Registration Service, can flag known vulnerabilities including economic abuse, risk of fraud, over-indebtedness, impact of Covid and power of attorney, to mortgage lenders at the start of a relationship and throughout, where circumstances change.
Better engagement between mortgage providers and debt advisers, where vulnerability assessments are mutually recognised, will also be key.
To protect the vulnerable, the industry needs to create environments that enable disclosure, making the process as simple and routine as changing a phone number. Working with third parties will also enable providers to prove they are doing the right thing, which the FCA is keen to see.
