Lenders’ own servicing teams are not ready to support borrowers as economic conditions worsen, according to new findings unveiled at the inaugural Future of Mortgage Servicing Conference, hosted by Target Group, Phoebus Software and the Financial Services Forum at the Belfry in Birmingham.
Delegates — around 100 c-suite leaders from across the mortgage market — were asked: “In the face of an economic environment that is set to become more volatile, are your in-house servicing teams ready to support borrowers?”
The poll revealed that 47% of lenders believed their teams were not ready. A further 12% were unsure. Only two in every five respondents expressed confidence in their organisation’s capacity to cope with the demands of a more challenging economic landscape.
ECONOMIC VOLATILITY TOP OF MIND
The findings come as lenders grapple with a combination of rising regulatory expectations, rapid advances in AI, a tougher economic outlook and increasingly sophisticated cyber threats — all of which are reshaping the demands placed on servicing operations.
Pete O’Connor (pictured), the chief executive of Target Group, said: “Target has been servicing loans books and working in the payments and collections space for more than four decades. We have experienced a great deal of economic volatility in that time.
“The early 1990s recession, following the Lawson boom and ERM crisis, saw base rates peak at 15% ahead of a 20% house-price crash which left one point eight million households in negative equity and drove mortgage possessions to a record 75,610 in 1991.”
He added that subsequent crises — from the global financial crisis, which pushed unemployment to 8% and sent possessions to 48,900 in 2009, to the more recent cost-of-living squeeze and the spike in arrears following the Truss mini-Budget — demonstrate how quickly pressures can escalate.
“So, we know that when the economic environment becomes more volatile, arrears and possessions skyrocket.
“While regulatory forbearance and lender flexibility might keep totals below 1990s peaks in the months and years ahead, lenders themselves know their teams aren’t ready for the shift away from a relatively benign economic environment towards a more volatile world.”
O’Connor said lenders processed around three hundred possession claims per working day during the 1991 recession — far beyond the capacity of many modern servicing teams which were built for the low-arrears conditions of the 2010s.
He warned that without investment in scalability and automation, even a modest 20% rise in serious arrears could place systems under severe strain within weeks.
TECHNOLOGY AND PREPAREDNESS
Adam Oldfield, the chief executive of Phoebus Software, said: “Lenders attending the servicing conference will be aware of the growing need to change their preparedness to support borrowers with payment issues due to the uncertain economic conditions we face.”
He said the event was designed to help lenders “leave this first-ever servicing conference better equipped than they were before they attended” and added that both Phoebus and Target have key roles to play in helping firms ensure they have the right technology in place.
“With the FCA’s Consumer Duty now requiring demonstrable ‘good outcomes’ under stress scenarios, the lenders expressing doubt or uncertainty about servicing readiness are already taking the right steps by engaging with peers and suppliers who can help them to navigate these changing waters so their teams can always be ready to take the right action.”
