Focus on collections strategies

06 June 2018

Whilst there are still very low level arrears on UK mortgage books, there is little room for complacency. A tremendous amount of excellent forbearance has undoubtedly kept borrowers in their properties in comparison to collections practices of the mid-nineties, but with interest rates widely expected to start creeping up, so will repossessions.

 

There is a record amount of unsecured debt accompanying increasing mortgage values, with the automotive industry an example of growth boosted by far-too-easily-available finance.  If I want a £25k further advance I have to follow a mortgage application process. If I want a £25k car on PCP it seems all I need is a short form application and a quick credit check with not too many questions asked, which can’t be right.

 

We need a growing first time buyers’ market, many of whom have been trying to build up deposits for many years.  Some borrowers will offset that saved deposit with post completion credit on white goods and lifestyle products, much of which is purchased on credit and therefore would have affected their affordability calculations in their original mortgage application.

 

The implementation of the new Support for Mortgage Interest (SMI) scheme means borrowers reliant in assistance with the payment of mortgage interest, now have to apply for this as a loan. Back in March, the Liberal Democrats released figures saying only 10,000 of the estimated 124,000 homeowners affected had proactively applied for the new scheme. To be fair, lenders have been proactively contacting affected borrowers to ensure positive engagement and help stop any increase in arrears levels due to this.

 

It is this type of positive engagement that is key to successful collections policies. Accurate information is key in the collections process, much of which is in collaboration with borrowers and so can potentially be open to interpretation. The use of API’s for portfolio scoring to verify growing indebtedness is very useful as a predictive indicator of forthcoming financial hardship. We now see similar interfaces to the ONS to verify household expenditure against geographic and demographic criteria. This is also becoming more widely used in the application process meaning changes can be more easily identified.

 

Collections agents want their role to be as automated as is possible. Systems with integrated workflow are a must, so caseloads are accurate and managed only by exception when a case does not follow policy. Centralised collections’ departments require face-to-face visits on occasion. Companies such as Excel Counselling Services have been operating for many years and have a highly qualified field force to undertake face-to-face interviews on behalf of lenders. The availability of this as an option is a must to get a realistic view of the borrower’s true financial situation.

 

In summary, there are many factors to consider in an increasing interest rate environment that may put pressure on borrowers’ finances. Proactivity is key. Lack of consideration may be costly. However, our industry has shown it can operate in challenging environments before and will undoubtedly continue to do so.

 

Media contact

Debbie Staveley
Director and Owner,
bClear Communications

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+44 (0)1275 542 511

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