Having identified the fair treatment of customers with interest only mortgages as a key risk in their 2017/18 Business Plan, the FCA released their Thematic Review on how customers are being treated by their lenders. They last reviewed this area in 2013.
Good news is that all 10 lenders sampled had made good progress with strategies in place to make contact with customers, understand their repayment plans, and had solutions available where no repayment plan was in place. In most cases, the FCA noted well trained and experienced teams were in place to provide advice.
What were the learnings from the review?
- Whilst all the lenders had strategies in place, levels of customer engagement were generally low and in view of limited MI, the degree of success of the strategies was in some cases difficult to determine. An example of good practice was the segmentation of the impacted portfolio leading to personal and relevant strategies being used which led to an increase in contact rates.
- Letters remain the primary method of contact but additional strategies included outbound calls, information leaflets, and where the term has expired, home visits. Some lenders use annual statements and interest change letters as an opportunity to communicate with their customers regarding repayment. It is important that the communications highlight the benefit to the customer of making contact.
- Customer research suggested that there were 3 categories of customers who were not engaging –
- Those who were confident of their payment options so didn't see a need or benefit to engagement.
- Those whose payment options were uncertain and who wanted to retain flexibility or avoid facing poor options.
- Those without any options who did not want to confront the situation.
- Early engagement allows for more options to be considered. Accordingly, the earlier in the mortgage term that the matter is being raised with the customer, the better.
- Most lenders had a range of options available to customers but pre-maturity options were not always as clearly set out as the post-maturity options. Good practice was cited where flexibility was offered outside of stated policy in appropriate circumstances.
- Possession proceedings are considered as a last resort but when highlighted in communications with customers, do encourage some to make contact.
- Once customers make contact, it is important that there is a smooth process for them to follow. Examples of lenders not following up on communications and customers having to make contact repeatedly to ascertain progress were cited as poor practice.
How does your strategy stand up to the Thematic Review?
Some questions we would suggest that you ask of your strategy.
- Are we contacting our customers sufficiently early in their mortgage term? Is it ever too early?
- Are we taking every opportunity to remind the customer of the need to repay the mortgage at the end of the mortgage term and that they need to have in place a repayment strategy?
- How can we segment our customers so that we can ensure that our communications are relevant so as to improve contact rates?
- Are our communications sufficiently clear in setting out the benefit to the customer of making contact with us?
- Once a customer contacts us, what is their journey through to a resolution? How can this be improved?
- Is there the mechanism to move outside of our strategy in appropriate circumstances? Are our agents sufficiently clear on this to ensure that cases are appropriately escalated?
- Do we have in place the appropriate MI to assess the success of our strategy and determine how we may improve it?
- As a last resort, are we recognising possession proceedings are an option and is this a step we are using in the appropriate cases?
- Is our strategy for our buy to let portfolio fit for purpose?
TLT have worked with a number of lenders in developing and reviewing strategy. This has included developing policy and using case studies to ensure the policy evolves. We have also been involved in cases which would sit outside of policy.
Our experience has been that the commencement of possession proceedings has resulted in a resolution other than possession in approximately 90% of cases. Customers who were not positively engaging in addressing the issue have rescheduled their mortgages, refinanced, secured family funds, or have been prepared to sell the property.