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Offer customers an affordability review on their secured loans and credit cards

aspect.software.logo_.2014Small window of opportunity for banks to prevent future defaults and millions in servicing debt collection, says collections expert

A collections expert has suggested that providers should act now to prevent customers defaulting on loans and mortgages in the future, by undertaking a review of their financial circumstances with a view to offering better terms for those less able to withstand an increase in the base rate.

aspect.dave.ogden.image.2014Dave Ogden, a contact centre consultant at Aspect Software, said that the speed that UK unemployment is falling could bring interest hikes forward sooner than expected, leading to a higher risk that customers previously defaulting on their loans could do so again.

“This would leave more people in debt and cost providers in servicing repayments,” he said. “There is also a new generation of homeowners who have never experienced an interest rate increase, making them more likely to be unaware of what each 25 basis point rise will mean.”

The official UK unemployment rate fell even further away from the Bank of England’s 7 per cent nominal threshold for reviewing monetary policy this week, hitting 6.5 per cent between March to May 2014. Ogden said: “It’s great news for the tens of thousands now in employment, and a good sign that the economy is continuing to improve, but it should act as a warning that the likelihood of interest hikes by the Bank of England grows stronger.”

He continued: “According to The Money Charity, the average remaining mortgage for a household in the UK is £113,549. Even a small 0.25 per cent rise in interest rates could set the average UK household back around £15 per month; enough to make some people – particularly those on low incomes – struggle to pay some bills. Project that over the course of a year to 18 months to 2 per cent and it could reach £120 per month for the average family.

“Since the FCA put a higher cap on the cost of recuperating and servicing lower levels of debt incurred by non-payment, it’s in the interest of financial providers to proactively offer customers better deals now, than potentially spend millions collecting payments later,” he explained.

Ogden said: “Incremental rises are undoubtedly imminent, and however small they are, they absolutely will affect many people. With such rapid changes happening, it’s entirely feasible that the Bank’s interest rate will be 1 per cent or higher by the end of 2015, heading slowly upward as the economy continues to grow. While there’s no data to suggest where this may eventually rise to, the pre-financial crisis peak was 5.75 per cent in July 2007.

“There is a small window to review and analyse customer databases to see who has previously defaulted on repayments, or, who is at a higher risk of doing so if rates increase. Proactively contacting them to give them a better deal also demonstrates an organisation’s commitment to providing excellent customer experiences, as well as benefiting the company by saving the inevitable cost of collections or court cases. It also means keeping more customers, since most mortgages carry early repayment charges, credit cards offer introductory rates, and unsecured lending will almost certainly track any interest rate changes,” he added.

He concluded: “I urge all providers to think about the cost benefit of waiting, or going almost on a ‘loyalty drive’ of existing customers to secure their custom for the next year or two. This kind of remedial work and a customer focus will do both the individual financial brands and the industry good, and help protect the economy from setbacks in rebuilding itself over the next few years.”


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