Mortgages  

Lenders need to show customers more financial support

For banks with current account customers, this can mean analysing account behaviour to identify increased expenses and decreasing balances. 

3. Dust off scale-up plans for pre-arrears, collections, recovery and restructuring activities that were developed during the initial stages of the Covid-19 pandemic, but not required due to the level of government support.

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There will be a wealth of planning that was not put into action that will be transferable to the current situation, provided any strategies used are updated to reflect the much higher interest rate environment.

For example, it would be unwise to overuse payment holidays where unpaid interest accumulates in the current higher interest environment.

How should banks support customers through the financial volatility and higher interest rate environment?

First, given the current climate, banks have an increased responsibility to their customers to help them understand how interest rate changes will impact their monthly outgoings.

It is simply not sufficient to keep levels of communication at the same rate; customers are seeking advice on what the new economic landscape will mean for them and how it impacts existing financial products, as well as any new products they need.

So, in addition to responding to inbound customer inquiries, banks should be upping the level of proactive outbound communication and maintaining it for the foreseeable future.

Second, banks should be encouraging customers to engage with them as soon as possible if they are struggling to make loan repayments or meet other financial commitments.

Earlier engagement can help reach solutions that are better for both the customer and the bank.

This is more the case in a scenario where interest rates are high and house prices are falling as equity is more quickly eroded for customers in arrears in that situation.

To get on the front-foot and be targeted, banks can identify their customers in the mortgage book and current account customers who are likely to experience significant increases in mortgage payments and ensure they are ready to step up and help them.

Third, where customers need finance and can afford it, for example to move house or for business customers needing to invest in equipment, banks should continue to provide finance to credit-safe customers, where possible.

UK banks have rebuilt their balance sheets and equity in terms of capital ratios, so they are in a stronger position than they were in the last crisis.

Continuing to responsibly lend to good credit quality customers will help to ensure mobility of labour and support the broader economy.

The current eco-political climate makes for particularly challenging times. But it also presents an opportunity for banks to lead by example and show, rather than tell, customers how they will support them through the continued turmoil and in the future.