An unfortunate but sadly unavoidable side effect of the current cost-of-living crisis is the increase in consumers who will face difficulty in meeting their ongoing mortgage repayments.

In the first quarter of 2023, 76,630 homeowner mortgages were in arrears of 2.5% or more of their outstanding balance – 2% more than the previous quarter according to UK Finance figures.

With the ongoing surge in inflation and UK households facing a relentless hit on their cost-of-living, the FCA has been keen to stress the importance of mortgage lenders helping worried and struggling customers. It reported in May 2023 10.9m borrowers struggled to meet their bills and credit payments – compared to 7.8m in May 2022 and borrowers aged 18-34 are more likely to be financially stretched than the rest of the population.

To explain how mortgage lenders should be effectively helping their customers during this time, the regulator has been busy releasing a string of communications – outlined most recently in CP23/13 published on the 25th May and its finalised guidance published 13th March. And with the outcomes-focused Consumer Duty implementation deadline of 31st July around the corner, what measurable steps can mortgage providers and advisers take now to ensure they’re delivering good outcomes for their customers in these challenging times?

What do good outcomes look like?

1. Support in a crisis

It’s a vital time to encourage customers to engage early with their mortgage providers, to help address any signs of financial difficulties that they may face. The regulator has been clear to stipulate all customers must be provided with an appropriate level of care and support.

These most recent proposals bring into scope the existing rules and treatment of customers who indicate that they are at risk of missing payments, as well as those customers already known to be in payment difficulties.

The regulator will expect firms to:

• Support a wider population of customers under the new proposals, this includes customers at an early stage of payment difficulties
• Regularly review the effectiveness of policies and procedures to ensure that they are delivering good customer outcomes
• Monitor customer outcomes throughout the whole customer journey/arrears lifecycle (not just isolated interactions)
• Engage with customers to make them aware of product features and options available to them
• Meet the needs of vulnerable customers
• Make borrowers aware of the money guidance and free debt advice and other tools available to them
• Ensure fees and charges levied on a borrower when they are in payment shortfall are fair and do no more than cover a firm’s cost
• Be transparent about the range of options available to the customer

2. Actively avoid causing harm

The proportion of people that are in financial difficulty is massively impacted by the cost-of-living crisis, with the Financial Lives Survey in 2022 finding that a quarter of all UK adults have low financial resilience. As such, more customers are likely to have characteristics of vulnerability, either over the short or long term, requiring support to manage their credit commitments.

The regulator will expect firms to:

• Give forbearance strategies that are in the customer’s best interest, which consider their individual circumstance, and to avoid poor outcomes by providing forbearance if it’s not needed
• Update forbearance policies to expand the list of forbearance options that lenders must consider including (where appropriate) waiving, deferring payment of capital and/or interest, and reducing the interest rate or applying simple interest
• Recognise potential vulnerabilities and respond to customers appropriately.

So, it’s important to identify those with these vulnerabilities as soon as possible. Your best detection methods are in those early interactions with your front-line customer-facing staff. You may also be able to do some of the heavy lifting using data analytics if you are regularly collecting usable data.

3. Empowering your teams

By helping staff on your frontline understand what causes a customer to become vulnerable and susceptible, a firm is taking the initiative in delivering the first steps of meaningful customer support. And beyond that, take a look at your systems. Are they set up to enable staff to record types of vulnerability and actions taken to support them better? Staff play an important role in delivering good outcomes for vulnerable customers. Empower your customer facing teams to deliver the best outcome for each and every customer. Senior staff and boards can avoid a policy/practice gap by ensuring that policies are embedded into the culture and processes of the entire business.

Much of this is down to having the right customer services and systems in place to enable staff to respond flexibly to the needs of vulnerable customers. Your current training is likely to need updating to help staff understand the common types of vulnerability they are likely to be seeing in these circumstances.

4. Remediation done right

The consumers facing financial hardship will be seeking quick and efficient problem solving from their mortgage lenders – and this is particularly true when dealing with complaints. During the first half of 2022, financial services firms received 1.88m complaints the FCA reports – an increase of 1% on the previous two quarters.

And so ensuring you have the right plans and processes in place will be fundamental to supporting your customers. Now’s the time to take stock and ensure you have the staff, the right skills and the experience to handle complaints effectively and remediate customers with care and diligence during these uncertain times.

Key points to consider:

• Ensure your complaint handlers are open and transparent and listen carefully to customer concerns
• Identify the root cause of the complaint – understanding the fundamentals of what went wrong is a crucial part of the Consumer Duty’s support outcome
• Widen your focus to consider if any comparable complaints have previously been made. An impartial appraisal of your firm’s complaints process will offer an unbiased perspective
• Learn all you can from the complaints you receive – it’s the best remedy to stop the same problem from happening again

How mortgage providers and advisers can implement good customer outcomes

Firms that haven’t provided good outcomes for their customers that are facing financial difficulty have been told to make changes by the regulator:

“Where firms haven’t supported their customers properly, the FCA has told them to make changes. It reminded 3,500 lenders of how they should be supporting borrowers in financial difficulty and told 32 lenders to make changes to the way they treat customers. This work has led to £29 million in compensation being secured for over 80,000 customers.” FCA

So with the FCA’s focus firmly upon the mortgage sector, now is an important time for firms to take stock and ensure they’re meeting their compliance expectations. Enlisting external support to review and prioritise the help and protection of customers – especially those considered vulnerable is a diligent step to take.

TCC’s Intelligent Compliance solution

Our experienced team of former regulators and experienced practitioners can help by:

• Reviewing how the risk of payment difficulties are monitored at your firm via MI, customer payment records and customer dialogue
• Assessing the effectiveness and design of your T&C framework to ensure your teams engage with customers and support those with vulnerable characteristics
• Evaluating your QA framework and function to monitor good outcomes through the full customer journey and product lifecycle
• Assessing the fairness and equality of customer treatment from your firm’s forbearance policies
• Providing a rounded analysis of your communication strategy for compliance with the consumer understanding outcome of the Consumer Duty
• Identifying how your firm responds to consumers with characteristics of vulnerability and rectifying any compliance gaps
• Reviewing your firm’s governance framework to achieve full oversight of customer treatment strategy and outcomes
• Considering case reviews of full consumer journeys to monitor customer outcomes, complaint customer treatment strategies and record keeping standards
• Harnessing the power of smart people and smart tech through TCC’s trusted partner Recordsure to record customer interactions whilst enabling up to 100% oversight

We understand that one size doesn’t fit all. That’s why TCC’s experts take a holistic approach and can offer this variety of solutions to help a firm monitor and evidence good customer outcomes over the long term – and ultimately supporting your business where it needs it most.