Lenders’ in-house servicing teams are not ready to support borrowers in the face of oncoming economic volatility, new research from Target Group and Phoebus Software reveals.
Earlier this month, Target, Phoebus and the Financial Services Forum held the inaugural Future of Mortgage Servicing Conference in Birmingham. 100 c-suite leaders from the mortgage industry who attended were asked “In the face of an economic environment that is set to become more volatile, are your in-house servicing teams ready to support borrowers?”
The results of the poll found that 47% of lenders thought their in-house servicing teams were not ready to support borrowers. Another 12% said they weren’t sure – meaning only two in every five of the lenders polled were confident their servicing teams were ready to deal with the results of an increasingly volatile economic environment.
Lenders are seeking more support in servicing their customers with the emergence of a growing number of opportunities and threats, including the rise of AI, increased regulation, economic uncertainty and more sophisticated cyber-crime.
Pete O’Connor, chief executive of Target Group, said: “Target has been servicing loans books and working in the payments and collections space for more than four decades. We have experienced a great deal of economic volatility in that time. The early 1990s recession, following the Lawson boom and ERM crisis, saw base rates peak at 15% ahead of a 20% house-price crash which left 1.8 million households in negative equity and drove mortgage possessions to a record 75,610 in 1991. We have been through the Global Financial Crisis which triggered unemployment to rise to 8% and a 16% fall in house prices, pushing annual possessions to 48,900 in 2009, with three-month-plus arrears hitting 2.3% of balances. And we saw the cost-of-living crisis, amplified by the Truss mini-Budget’s rate spike, when arrears climbed to 85,000 cases by mid-2023 and possessions rose 40% year-on-year.
“So, we know that when the economic environment becomes more volatile, arrears and possessions skyrocket. While regulatory forbearance and lender flexibility might keep totals below 1990s peaks in the months and years ahead, lenders themselves know their teams aren’t ready for the shift away from a relatively benign economic environment towards a more volatile world. During the 1991 recession, lenders were processing 300 possession claims per working day – far exceeding the capacity of many modern servicing teams built for the low-arrears environment of the 2010s. Lenders will need to invest and automate to cope. Without urgent scalability upgrades, even a modest 20% rise in serious arrears could overwhelm current systems within weeks. Forward-thinking lenders will already be embedding AI-driven early-warning triage and automated forbearance pathways to pre-empt customer harm and enforcement action.”
Adam Oldfield, chief executive of Phoebus Software, commented: “Lenders attending the servicing conference will be aware of the growing need to change their preparedness to support borrowers with payment issues due to the uncertain economic conditions we face. We put the event on especially to address these issues and ensure that lenders could leave this first-ever servicing conference better equipped than they were before they attended. It is the role and expertise of both Phoebus and Target to support lenders in our different ways, so that they have the technology to help them, whatever the future brings.
“With the FCA’s Consumer Duty now requiring demonstrable ‘good outcomes’ under stress scenarios, the lenders expressing doubt or uncertainty about servicing readiness are already taking the right steps by engaging with peers and suppliers who can help them to navigate these changing waters so their teams can always be ready to take the right action."
