Independent review and analysis

Arrears contingency planning

The markets were not surprised when the Bank of England Monetary Policy Committee (MPC) recently voted to increase the bank base rate. The only surprise was that the increase was limited to 0.25%, lifting the rate to 0.50%. It is now known that members were split 5-4 with those in the minority arguing for a bigger increase (0.50% to 0.75%). While the increase is designed to return inflation to its 2% target, the hawks felt a more aggressive increase was required to prevent spiralling prices becoming embedded. The consumer prices index is already at the highest level since the early 1990s.

Household budgeting is being hit by a ‘perfect storm’ as highlighted in the MPC minutes. The Bank now expects:

  • Higher energy and goods prices will continue to push inflation above the 2% target
  • Inflation to rise to around 7% by the spring
  • The projected implied path for Bank Rate is an increase to around 1.5% by the middle of 2023.

Despite this backdrop, mortgage arrears have continued to fall to near historic lows in the third quarter of 2021, but those statistics are now turning. Possessions have risen slightly as the courts work through the backlog of cases built up during the COVID possession moratorium. While the cases currently going through the courts are predominantly those that had already built-up significant levels of arrears prior to the start of the UK’s response to the pandemic, that is also beginning to change, and lenders and servicers are seeing early signs of stress in customer payment profiles.

Collections departments coped with the Government led ‘payment holiday’ scheme, but we are now hearing that they are revisiting their contingency resourcing plans. A practical issue has cropped up too: lenders and servicers having not been troubled by the volumes of collections activities over the last decade, has resulted in the loss of experienced staff, who have either been re-deployed or simply retired.

But help is on hand; we can design policies and procedures tailored to individual firm’s requirements, can build robust resource plans, can provide independent oversight of collections activities and even supply agents as a back-up resource. If you’d like to discuss how we can help, give us a call.

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