August was a pivotal month for the economy and with political uncertainty being added to the frame, for the first time in a long while, arrears figures may begin to jump.
Growth in the services sector slowed in August with business confidence regarding the next 12 months hitting its lowest point since July 2016.
At the time of writing, it is estimated that there was a 0.1% contraction in GDP in the three months to August. With the economy shrinking 0.2% in Q2 2019, a contraction in Q3 would mean the country is officially in recession. Worryingly, in August, Britain’s construction industry suffered its sharpest decline in new work in more than a decade, a statistic that has potentially significant repercussions for our industry.
But is it secured lending, that we should be worried about? The Money Charity reports the UK public owed £1,642 billion in credit as at the end of June. This is an increase of £887 per adult on the previous 12 months and an increase of £619 million on May. More worrying, consumer credit accounted for £218.1 billion or 13% of this.
In Q1 2019, £432 million of credit card debt was written off. In Q2, 340 people a day were declared insolvent or bankrupt; CAB dealt with over 2,500 debt issues every day in the first half of 2019. Yet I can still get a brand new car with a basic credit check, no proof of income and a ten minute “interview”.
Everything is pointing to hard times ahead from an arrears management perspective and now is the time to be proactive on this front. Collections operations will see an increase in customer contact and therefore it is hugely important that only cases that need to be managed are administered. Collections and special servicing platforms therefore need to alert lenders’ arrears staff by exception on events that do not meet a contractual requirement.
Automation via workflow is key. Systems such as Phoebus will automate all processing until a staff member needs to become involved in a case. For example, no-one needs to manually send out a letter where there is a missed payment – systems can do this by automatically work queuing customer contact should a payment not be received.
I have been through three recessions and we have always recovered. The natural economic cycle could dictate when another one is due without the current Brexit fun and games. But, in mortgage terms, interest rates are low and secured lending affordability on the face of is pretty healthy in comparison to previous recessions.