Everyone prefers to think of themselves as individuals, with unique needs and interests that need to be addressed in a way personal to them.
Certainly, when someone comes to making their biggest ever financial commitment in the form of a mortgage, they want to find the perfect deal for their situation.
This ideal is just as relevent when it comes to the way a lender approaches someone falling into arrears with their loan.
Yet, with the Financial Services Authority (FSA) now voicing its concerns over arrears management, are customers really getting an individual service from lenders? Or are mass market tactics simply dictating terms to customers?
One-size does not fit all
The FSA says it has found some lenders are ‘unwilling’ to look at customers’ situations case-by-case, instead preferring the one-size fits all approach. So worried is the FSA by this situation that it is launching a firm-facing thematic review into arrears management practices ‘as a matter of urgency’ to discover whether there really is a problem of non-compliance.
Speaking at the Council of Mortgage Lenders’ annual conference, Clive Briault, retail managing director at the FSA, said: “Arrears and repossessions have increased significantly, albeit from a very low base and concentrated in specific sectors of the market. We expect lenders to meet the requirements on the treatment of customers having payment difficulties set out in our Mortgage Conduct of Business sourcebook.
“A fairly consistent picture is emerging of some lenders across the market appearing to be unwilling to consider cases on an individual basis, unwilling to agree a solution tailored to the borrower’s individual circumstances, and apparently adopting a one-size fits all approach to arrears recovery.”
In the lenders’ interest
Yet, lenders reject the idea that they treat customers so offhandedly, saying that it is in no one’s interests to end up with customers unable to meet repayments and landing everyone in a repossession scenario.
Certainly, Jeremy Russ, head of marketing and compliance at Beacon, comments that as an originator, he would find it surprising for lenders to be unwilling to consider a customer’s individual needs to arrears management. He says: “Lenders approach arrears management in the same way as origination and it’s in the lender’s interests to do that. Surely it’s better to have a working relationship with customers; to have an arrangement with them, and work through it.
“Lenders don’t originate loans on the idea that it will go into arrears. For responsible lending, lenders have to make sure borrowers can afford the loan now and in the future.”
Indeed, Clare Mortimer, senior media relations manager at BM Solutions, believes that lending has already been moving towards looking at cases on an individual basis, particularly with the uptake of affordability based lending, which demands an individual approach.
She adds: “When it comes to arrears, it is beneficial for the lender and borrower to work together and it is very difficult to say one-size fits all. No one wants any case to get to the repossession stage.
“I think it’s a good idea that the FSA looks at this area. A lot has been written recently about arrears and repossessions, so it’s timely that the FSA looks at it.”
Varying but effective
Of course, each lender will invariably take its own approach to arrears management, something that Mark Chilton, chief executive of Homeowners Mortgages, believes leads to widely varying and effective strategies.
He explains: “The better lenders, and the more intelligent ones, have prepared themselves for an anticipated downturn and how they can help borrowers. A number of non-conforming lenders are very proactive and will deal with things as they come up. The art form is preventing people ending up in arrears in the first place.”
Indeed, the much-vaunted problems that existing borrowers face when remortgaging next year are much misplaced, according to Chilton. He points out that the vast majority of non-conforming borrowers will have been able to repair their credit since taking out the mortgage and, far from being unable to find a deal, will be able to move up to a less adverse or even prime product. This in itself would negate many issues of affordability and managing repayments for many people.
Yet, Chilton is ambivalent over the need for the regulator’s review to be conducted, stating: “I will be very surprised if it finds anything. The last thing anyone wants is to go to repossession.”
It is this message that comes out loud and clear from lenders – no one wants repossessions. It is of no benefit to either the lender or the borrower to reach that end and lenders are fully aware of that. Of course, each firm adopts its own arrears strategy and, in light of the current market and upcoming review, it is a prudent lender that evaluates its tactics carefully. But, until next March when the FSA’s thematic review is expected to be published, one can only guess what it might reveal.
