Every single person will have learnt lessons from the pandemic, whether that is how to work from home efficiently, how to adapt their business strategy, or even how to order groceries online.
The mortgage industry has learned a lot over the last year when it comes to dealing with an influx of vulnerable customers. Millions of people have become financially vulnerable thanks to Covid-19, many of whom have never suffered any kind of financial difficulty before. There will be many more struggling once the true fallout of the pandemic is revealed and the industry has to be geared up to deal with these increased volumes.
The official unemployment rate is 4.7%[1] and millions more people remain furloughed by their employer. Each of these people could be financially vulnerable, many of them for the first time in their lives. Freelancers, the self-employed and workers in struggling sectors like travel and hospitality have seen their incomes fall dramatically and there’s been a steep increase in people claiming benefits. In April 2021 there were 2.6 million people seeking Jobseeker’s Allowance or universal credit.
Sectors like retail have also been changed forever by the pandemic. A stark reminder of this is the fact that more than 17,500 shops were permanently closed during 2020, according to a report by accountants PwC[2]. Many others will have followed suit since. As a result, workers who previously thought they had a steady job or reliable income have seen their financial lives thrown into disarray.
As well as increased unemployment and lower incomes, many people may have seen their previously unblemished credit record damaged in the last 18 months, thanks to missed and late payments of loans and other debts. The number of people in financial distress could rise even further as government support schemes like furlough are wound down this year.
The mortgage industry has worked tirelessly to keep people in their homes during the pandemic, but it now must prepare for a new set of challenges as Britain exits lockdown. There are many scenarios where lenders will need to show care and compassion to ensure their customers have the best outcomes in their hour of need.
Employees may need to re-train, and this could mean customers require more flexibility regarding their mortgage than previously. In cases where borrowers have previously claimed support from their lender, firms should be proactive and check whether their finances have started to recover, or whether further assistance is required.
Lenders can also guide customers in the direction of further support from external organisations, such as StepChange or the Money Advice Service, which provide free financial advice. There’s also the government Debt Respite Scheme ‘Breathing Space’, which gives those deep in debt, either due to a mental health crisis or another reason, a period of time where they are protected from creditor action. An intervention now could prevent much larger financial problems occurring further down the line.
The pandemic has repeatedly demonstrated the benefits of taking customer safeguarding seriously. Lenders should be using customer data and trends to detect potential issues early on, understand the root cause of these problems, and offer a broad and flexible range of support to struggling borrowers.
But using this data is only the first step; it is crucial that staff members are empathetic to customers. Customer support will need to create a supporting and safe environment so that individuals can open up about their circumstances, as this is the best way to decide upon an appropriate and personalised long-term solution. Staff will also need to be well trained, kept up to date with the latest industry best practice and recruited with these skills in mind. We have learnt in the last year that one-off events can cause huge changes to a person’s financial situation. Our sector helped millions of struggling people when they were at their lowest ebb, but there can be no room for complacency.
The pandemic was an effective stress test for the systems that lenders already had in place and the industry proved its mettle reacting nimbly and supporting millions. As we have seen, the nature of financial vulnerability can change almost overnight. As such, now is the time to learn lessons about what worked, be honest about what did not, and identify where processes need to be improved.
Another economic shock could come at any time, so now is the time for lenders to embed these support structures in their businesses for any future challenges that lie ahead. It’s also highlighted the importance of the end-to-end customer journey. Lenders will need to collaborate closely with brokers, originations teams, servicing and collections to ensure that no warning signs are missed in the quest to support customers.
The industry is uniquely positioned, due to regular contact with a large proportion of the UK adult population, to bolster the wellbeing of the nation whilst providing much needed financial support. It’s important that we continue to step up to the challenge.
David Kennedy is chief lending officer at Masthaven Bank
[1] https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment
[2] https://www.theguardian.com/business/2021/mar/14/great-britain-high-streets-lost-more-than-17500-chain-stores-in-2020-covid