The Covid-19 pandemic has hit the finances of some people in the UK hard and there is likely worse to come. Can fintechs help manage some of the increased financial vulnerability in the mortgage market?
According to the Money Advice Trust, the charity behind National Debtline and Business Debtline, nearly a third of adults in Britain (31%) report being financially worse off because of the Covid-19 pandemic – with 20% concerned that their finances won’t recover.
That’s according to the Money Advice Trust, the charity behind National Debtline and Business Debtline. They report that since the start of the pandemic, 12% of British adults have turned to credit to pay for essentials such as groceries.
When people don’t have the money to buy food, they also struggle to pay for other essentials including housing costs – which for most people is their single biggest outgoing.
Matt Hartley is Head of Public Affairs & Engagement at the Money Advice Trust. He says, “We have been in a benign interest rate environment for many years and there has been huge government support for households. So we haven’t seen the full impact on housing finances yet. It seems safe to say that as support measures end, there will be an increase in mortgage arrears and repossessions.”
Janis Hambling, Head of Operations at Yorkshire Building Society (YBS) says, “We think unemployment is one of the key drivers of vulnerability in the mortgage market.”
And YBS is “very mindful” that the removal of government support post-Covid could lead to an increase in unemployment.
Hartley says that the proportion of unemployed callers to the National Debtline rose by eight percentage points to 42% between March and December 2020.
Has that led to problems in the mortgage market?
Hambling says that YBS has issued just over 40,000 payment deferrals as of May 2021, which is around 15% of eligible accounts. Of those deferrals just over 1% were still active in May, with the vast majority (95%) of those three-month requests.
“We keep a close track on performance of these accounts…to ensure we continue to provide support. And we have seen low levels (around 4%) of accounts getting worse after a payment deferral,” she says.
Fintech and managing vulnerability
Mortgage lenders typically have interactions with borrowers only a few times a year. In contrast many people check their current account daily, which can help provide firms with ongoing data about potential vulnerabilities.
YBS still has a branch-based approach.
Hambling says, “We currently don’t have automated chat bots. We are very committed to talking to people – the dialogue gives us an opportunity to spot vulnerability.”
“That said, we do recognise that not offering a technological solution can cause vulnerability – as in lockdown. Then we started managing some of our branch processes over the phone.”
“We are thinking about secure web chat, where a human being is on the end to pick up on any vulnerability,” says Hambling.
She adds that YBS has a “big” digital transformation programme underway.
“In our environment, the power is in the insight,” says Hambling. “An ability to harvest and process insight is very attractive when thinking about support our customers. Right now, vulnerability is often self-declared. Staff do look out for patterns of behaviour, but I know that there is more we can do to help identifying vulnerabilities.”
Hartley at the Money Advice Trust says that people who want debt advice from them prefer to use the web chat. “It has an element of anonymity. It can be used without other people overhearing,” he says.
Hartley also says that open banking is likely be used to help the financial vulnerable.
He points out that Nationwide worked with seven fintech start-ups on the ‘Open Banking for Good’ challenge in 2019 to develop apps for the financial vulnerable. At that point, research suggested that up to 12.7 million people in the UK were ‘financial squeezed’.
But financial vulnerability is not necessarily about lacking funds. As society ages, and many young people struggle to get on the housing ladder, new problems may develop.
Hambling says, “We know that some older homeowners are using equity release to help younger people. We don’t offer equity release directly, but recently started discussing how to talk about those products using the support of experts in the industry. There is a need in the market, but there are also complexity and vulnerability issues around equity release to be considered.”