In a blog post, loan portfolio review and analysis firm Rockstead said that it was helping several mortgage lenders and servicers gear up their arrears handling resources and capabilities.
It said: “Most mainstream lenders we speak with have been relieved that there has not been an instant spike in arrears at the end of payment holiday and furlough schemes. They are, however, still concerned about the effect of future increases in bank base rate, tax rises and the increasing cost of living.
“We believe that most lenders and holders of mortgage portfolios are not being lulled into a false sense of security based on historically low current arrears levels. Operational resilience experts, risk managers and resource planners are already working hard to ensure all PRA and FCA requirements are adhered to when the arrears ‘uptick’ does materialise.”
Rockstead’s chief client services officer Richard Gater said that mortgage lenders and servicers “across the board” were increasing their arrears preparation. He said this included high street lenders, specialist lenders and building societies.
He explained: “When they come to us, they are looking for experienced arrears people who can help either gear up when anticipated arrears do come, or conversely, they may look to train their own staff up and we backfill where those staff have moved on.”
He said that companies were mainly coming to them for access to arrears professionals who they can call upon when they were needed. Gater added that mortgage servicing companies would also be investing in services and platforms to improve arrears management.
“It may not be now, but they are getting their ducks in a row for six months’ time or so,” he said.
Current arrears landscape
The latest figures from UK Finance show that mortgage arrears fell to historic lows in the third quarter of this year, with 74,210 homeowner mortgages in arrears of 2.5 per cent or more of the outstanding balance
It added that 25,110 homeowners were in early arrears of between 2.5 and five per cent of their balance, a fall of five per cent from the prior quarter and 10 per cent less than the same period last year.
Serious arrears, 10 per cent or more of the outstanding balance, grew by 70 cases compared to the previous quarter to 27,980. The report said that it has been growing from a low base since the first quarter of 2020 although the increase has slowed.
It added that around three million payment deferrals were granted between March 2020 and March 2021.
Bank of England research from earlier in the year said that payment holidays had “provided significant support to borrowers” and mortgage borrowers with payment deferrals were less likely to report a cut in spending despite being more prone to face a fall in income.
A UK Finance spokesperson said that nearly three quarters of people were on fixed rate mortgage deals so would not be impacted by interest rate changes and those on variable rates had price fluctuations factored into their affordability test.
However, it did expect “modest pressure” on arrears next year due to the cost of living and unemployment but the outlook was better than predictions a year ago.
Lender outlook
Lenders responding to this publication said that they were taking every precaution to ensure that customers were supported and to account for changing economic conditions.
A Nationwide spokesperson said: “As a responsible lender, we ensure that affordability is assessed in a prudent manner that takes into account the potential for interest rates to increase in the future. We continue to closely monitor portfolio performance and we remain alert to the potential impact on our members of rising living costs and future interest rate rises.
“During the pandemic we increased the number of colleagues available to support members in financial difficulty and they remain available to support going forward as needed.”
A Santander spokesperson said that 250,000 customers had taken mortgage payment holidays during the pandemic, but 96 per cent had fully returned to mortgage payments. It added that around half of the four per cent who are in arrears currently were in arrears prior to taking a mortgage payment holiday.
The lender also noted that 83 per cent of Santander’s mortgage customers were on a fixed rate product so would not be impacted by changes in base rate during their product term.
The lender said: “We have a team of financial care experts ready to support any customers who are struggling to make their monthly mortgage repayments with tailored solutions based on their individual circumstances.”
“The earlier customers contact us, the better, and we would urge mortgage customers to call us as soon as possible if they are concerned about their payment.”
Jon Cooper, head of mortgage distribution at Aldermore, said: “If a customer does think they will have payment issues in the future, we’d advise they contact their lender as early as possible so there is time to plan ahead. At Aldermore, if a customer is experiencing problems, we’ll constantly engage with them to look at their individual circumstances and work out what options and payment plans best suit them.
“Throughout last year we further increased the capacity and capability of our business when supporting customers impacted by the pandemic, which means we’re in an even better position to assist customers when they require help.”
An Aldermore spokesperson added that the mortgage market review in 2014 had put in place regulatory guidelines so affordability higher base rates has already been incorporated into calculations.
He also noted that the implementation of payment holidays during the pandemic had forced lenders to improve their infrastructure, suggesting that most could be better prepared at dealing with customers with arrears.
