Mortgage industry leaders have been meeting at The Broadcast PR Business to discuss more effective ways of engaging customers on plans to pay off interest-only mortgages.
The FCA has warned mortgage lenders that they must talk to their customers before an April 2014 deadline, to help householders put a plan in place to pay off their loans.
So far there has only been a very small response by customers to letters from their lenders and industry leaders have been discussing alternative ways of communicating.
View the discussion here:
Professor Daniel Read of Warwick Business School, an expert in behavioural economics, presented his views on why borrowers choose not to “engage” with their lenders:
“It would be much more effective if lenders could offer customers an action that is relatively easy to achieve, one that they can see as having a positive outcome. Asking them to increase monthly payments by only £50 might be a start. A specific action like this can be habit-inducing, and they could increase payments over time. Communications need to be personalised and they need to be simple.”
Broadcaster Paul Lewis added:
“People must take responsibility for repayment of the loan but I don’t think that a letter from a bank will do it. Either you must frighten people or find a solution that they can see other people moving to – all the ideas discussed today on this were very interesting.”
“The FCA has let banks off the hook – from its research, half of the mortgage holders’ plans to repay were deemed inadequate – so should banks have sold these in the first place? What documented evidence was there on the plans to repay loans, beyond Aunt Flo dying at some point and leaving a bit of cash?”
Vanessa Owen of The Equity Release Council and Head of Equity Release at LV=, added:
“A letter is easily ignored so including radio and consultation by phone in a campaign would be much more effective at persuading people to take notice and take action. For a lot of people equity release may be the answer, where the loan-to-value is between 20% to 50%, but it is not for everyone. The most important thing on the interest only issue is to get people to take action earlier, and not leave it until it’s too late!”
John Charcol’s lead spokesman Ray Boulger said:
“It was useful to hear that Lloyds Banking Group has some very sensible proposals planned that will help their clients. As the biggest lender in the UK with the biggest proportion of interest only customers what they do will most likely be copied by other industry players.”
“Brokers do also have a big responsibility to make sure customers have a credible repayment strategy. However, there is an issue because sometimes what we view as a credible strategy for clients is not on the banks’ list.”
Heather Fearfield, Founder Director at The Broadcast PR Business commented:
“What is clear is that the industry needs to counter customer avoidance and media criticism by putting the human touch into lender communications. Phone consultation is part of this, but video showcasing different solutions and customer journeys in tackling debt could be deployed both in-branch and over the web at fairly low cost. This, done as a cross-industry effort, could provide much more guidance and support for customers and complement the letter campaigns.”