The Intermediary – September 2025 - Flipbook - Page 48
RESIDENTIAL
Opinion
Affordability
challenges are here
for the long-term
A
ffordability is a
defining theme for
the market at the
moment, and there
are no signs this
will change for the
foreseeable future. We are seeing
previously tight ‘risk handcuffs’ being
loosened by the regulator, which of
course makes originating easier, those
in charge of back-book activities such
as arrears and special servicing are
ensuring strategies and systems are fit
for purpose.
The challenges for borrowers
are real. To put today’s economic
environment into perspective, UK
inflation is forecast as high as 4% by
the end of 2025, versus a 2% target.
The announced 2% rise in the
energy price cap took many by
surprise, and is a reminder that
inflationary pressures remain
unpredictable.
Combined with elevated food and
other household costs, this makes
affordability a long-term concern for
lenders and consumers alike.
Payment shocks
One of the biggest risks over the
coming months is the ‘payment shock’
facing borrowers as they come off
historically low fixed-rate deals.
From June 2025 to 2028 Q2, 41%
of mortgage accounts (3.6 million)
are expected to refinance onto higher
rates, according to the Bank of
England, which will undoubtedly put
pressure on many borrowers’ wider
financial resilience.
Today, while arrears remain
relatively low, possessions have started
to tick upwards, which could indicate
that lenders are taking a firmer stance
on arrears management and more
importantly, book loss recovery.
The regulator and Government are
46
The Intermediary | September 2025
watching this closely, but the message
for lenders is clear: affordability
risk is not just about who you lend
to today, but how you support them
throughout the life of the loan. This
is within the parameters of relatively
new legislation on treating customers
fairly (TCF) and Consumer Duty,
which were not in existence the last
time lenders needed to seriously
consider increased portfolio risk.
Caution without fear
Some are drawing parallels between
2008 and now, but none of this is cause
for alarmist predictions of a repeat
of the Global Financial Crisis (GFC).
Today’s mortgage market is far beer
capitalised and beer regulated, and
overall, we have a much more stable
financial system than existed 17 years
ago. This is one reason why arrears
have not risen sharply in recent
quarters, despite some households
feeling the strain.
But lenders would be right to
approach the year ahead with caution.
Economic volatility, inflationary
uncertainty, and the risk of rising
possessions all underline the need for
proactive risk management.
Role of automation
Technology has a crucial role to play
in this environment. As volumes
of customer enquiries and contacts
increase, manual servicing processes
need to be avoided in a market where
volumes could shi quickly and
where regulatory expectations are still
very high in terms of dealing with
borrowers thoroughly and fairly.
Modern servicing platforms
handle the routine aspects of case
management automatically – from
communications to workflow
allocation – freeing human teams
to focus on the cases that require
RICHARD PIKE
is chief sales and marketing
officer at Phoebus Software
Today, while arrears
remain relatively low,
possessions have started
to tick upwards”
judgment and empathy. The same
applies across collections, where
automation can ensure consistency,
reduce error rates and deliver a fairer
experience for customers.
For lenders, this means being able
to scale quickly, adapt to changing
market conditions and evidence
robust processes to the regulator.
For borrowers, it means clearer
communication, more consistent
outcomes and the reassurance that
they will be supported through
financial difficulties.
Looking ahead
Affordability pressures are not a shortterm shock but a structural reality of
the current economic cycle. Interest
rates may fall later than many had
hoped until inflation is under control,
but the legacy of higher borrowing
costs, unpredictable inflation, and
increased household vulnerability will
be with us for some time, as it has in
previous similar economic cycles.
Lenders cannot eliminate these
pressures, but they can mitigate
them by a combination of the right
automated servicing technology
combined with exceptional customer
interaction and service. ●
