With around 400,000 ‘high-risk’ borrowers in the UK, lenders should prepare strategies for when rates finally rise
The suggestion by Mark Carney that rate rises in the UK are unlikely before 2017 will have been welcomed by borrowers. We may even follow Japan’s example, where experts have predicted inevitable rate rises ever since they were reduced to zero in 1999.
That said, we have a generation of savers and borrowers who have not seen interest rates above 0.5 per cent and there are concerns around rising unsecured debts as credit becomes more freely available once again.
From a lender perspective, there is encouragement from both the regulator and trade bodies to ensure proactive engagement with borrowers when interest rates look more likely to increase. The number of ‘high-risk’ borrowers is estimated at around 400,000 nationally: a mix of people still in high-LTV situations and those who have increased personal debts.
Lenders need to be considering their strategies in identifying their most vulnerable borrowers in a rising rate environment. Portfolio scoring and trending via analytical tools, now widely available, will be useful in assisting this process.
Proactive campaigns with annual mortgage statements encouraging those worried to make contact will also have a positive effect, both in terms of identifying borrowers and, if done properly, through positive PR received as a result of undertaking the task in a borrower-centric way.
The reality of rate rises in the UK is that they will be very gradual, yet probably fairly frequent once they get started.
Lenders need to prepare, not just with borrower hardship strategies but also in terms of the system implications of generating documentation, such as new instalment letters, which, in some cases, have not been produced since 2008.
Richard Pike is sales and marketing director at Phoebus Software