Early intervention and a holistic view of debt can help lenders break the arrears cycle.
One of the issues tackled in the Financial Services Authority’s Mortgage Market Review is the degree of forbearance lenders must show to ensure customers in arrears are given the best chance to explore ways of bringing their accounts back into balance.
Understandably, most lenders have strategies that focus on collections after arrears appear. But I believe they should identify clients who might go into arrears rather than wait for problems to come to a head.
When it comes to those individuals whose reason for being in difficulty is unaffordable unsecured debt, our experience shows that tackling this as part of an overall strategy of arrears control helps get more clients back on the straight and narrow.
Our feedback shows that many borrowers are funding mortgage repayments using credit cards and other unsecured debt until their credit lines are exhausted, meaning problems are likely to be serious when arrears appear.
Time spent investigating the tell-tale signs of payment breakdown such as clients requesting a switch to interest-only payments, erratic payments, loss of employment or using credit cards to pay mortgages could stop many borrowers developing serious problems with arrears.
Building a culture which helps clients tackle underlying debt issues before they become critical will cut arrears cases and serve both lenders and clients better.