"We all know only too well, given the last few years, how events out of a borrower’s control can have a substantial impact on their capacity for meeting their repayments."
While mortgage rates have increased marginally of late, they remain much more attractive than was the case just a few short months ago. The latest data from Moneyfacts for example found that the average rates for two and five-year fixed rate mortgages stands at 5.80% and 5.39% respectively.
But go back to September and those same averages were 6.70% and 6.19%, putting far greater strain on borrowers looking to get the sums to add up in their household budgets.
Falling rates have not just led to improved confidence among potential buyers, who have put their purchase plans on hold over the last year or so on account of the greater costs involved.
There has also been a tangible improvement in the position of existing borrowers around making their mortgage repayments. The most recent Property Tracker from the Building Societies Association found that just 9% of borrowers were either not confident at all, or not very confident, about paying their mortgage over the next six months.
Not only is that down from the 12% recorded in the last tracker, back in December 2023, but it’s also the lowest level recorded in almost two years.
This is enormously encouraging, given the understandable concerns about potential arrears levels across the industry. After all, UK Finance found that the number of mortgages in arrears rose by 7% in the final quarter of last year, while the Bank of England has suggested that arrears are at a seven-year high.
This simply highlights how crucial it is for lenders to do more to support borrowers who may find themselves in difficulty.
Assessing borrowers properly
The first stage of keeping arrears low is of course the initial lending decision. Any responsible lender wants to be thorough in assessing the applicant at the outset, to be confident that they will be able to maintain their repayments for the lifetime of the loan, even if and when the rates on their mortgage change.
While many lenders often do this based on a credit score, we prefer a different approach at Atom Bank. We utilise technology to get a much broader picture of a borrower’s true circumstances, and employ sensible underwriting practices to ensure that we lend sensibly while ensuring we don’t exclude areas of the market that may be overlooked and underserved by some high street lenders.
Offering proactive support
Of course, circumstances change. We all know only too well, given the last few years, how events out of a borrower’s control can have a substantial impact on their capacity for meeting their repayments.
Whether it’s a singular event, like a job loss, or a more gradual worsening of their financial situation due to the rising costs of everyday life, there will be borrowers who find themselves in difficulty.
We aren’t content to take a backseat here, wait for the problems to reach breaking point and for the borrower to directly approach us for help before doing anything.
We have a more proactive outlook at Atom Bank, which is why we utilise our technology to help identify those borrowers who appear to be most at risk of dropping into repayment difficulties.
From here we can offer a range of tailored solutions, like personalised budgeting reviews, providing them with the helping hand they need to get a better grip on their finances and their mortgage repayments.
Getting results
As we increase our mortgage book substantially, our approach is making a real difference too. While the industry average for the percentage of loans with arrears over 2.5% of the balance stands at 1.07%, according to UK Finance, at Atom bank it is just 0.27%.
What’s more, we have never had a mortgage write off, a clear indication that being more flexible and proactive delivers for borrowers even when their situation becomes more challenging.
It is inevitable that rising costs on household expenditure, let alone higher mortgage rates, will have an impact on the number of borrowers feeling uncomfortable making their mortgage repayments. But the experience of Atom Bank is that by stepping in before this becomes a substantial problem, and offering flexible solutions, we can provide borrowers with the assistance needed to get back on track in a timely manner.
