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Using property data to protect unsecured borrowers from debt difficulties

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Unsecured lenders will have breathed a small sigh of relief to see the base rate held at 5.25% for another month.

Mortgage rate shock

But the damage of previous rate hikes and inflationary price rises has already heaped pressure on squeezed household budgets.

This has led unsecured lenders to become increasingly concerned about the impact it will have on their borrowers’ ability to keep on top of loan commitments.

And UK Finance forecasts that 1.5 million homeowners will see their fixed rate mortgage end this year

Homeowners currently shielded by a historically low fixed or those listing their homes for sale and soon to be in a need of a new mortgage deal cannot escape the inevitable rate rise.


Rates rise threefold

The effect of almost a year and half of rate hikes is stark.

In December 2021 when the base rate rose from its historic low of 0.1% a homeowner with 25% equity could lock into a two-year fixed rate of just 1.57%. Now, that same borrower would be facing a rate of around 5%.

Such rapid rate rises call for a proactive data-led approach among unsecured lenders to prevent their borrowers from falling into a spiral of unmanageable debt.

It’s well known in financial services that homeowners prioritise their mortgage payments above all other financial commitments, not wanting to lose the roof from over their heads. Only around 1% of all mortgages in the UK are in arrears, according to UK Finance.


Rise in unmanageable debts

But the jump in monthly mortgage commitments, along with the rise in energy and food bills, eats into the amount of spare income homeowners previously had to service credit card debt, personal loans and other forms of unsecured finance.

Debt charity Stepchange said a quarter of its new clients cite the cost of living crisis as the reason they’re not able to manage their debts.

High street banks have already begun reporting that they are increasing their loan provisioning for bad debts, driven by a rise in credit card arrears.

This puts unsecured providers’ back books at risk while households face being plunged into financial difficulty and damaging their credit score for future borrowing needs.

Using property data to flag a change of circumstance

With such a gradual creep in the base rate, unsecured lenders have had plenty of time to put in place forbearance processes to help borrowers who have fallen into areas.

But perhaps it’s time for a different approach. By harnessing the power of UK property data, lenders can contact their customer base before they encounter difficulties.

Unsecured lenders who subscribe to a complete set of property listings data, which can be found on a property portal such as Zoopla, can set up a system that flags when their customer has put their home up for sale.

This action signifies that their customer is likely to experience a considerable mortgage rate shock in the coming months which could derail their previously diligent payment behaviour.

By knowing this event is on the horizon, unsecured lenders can contact borrowers to discuss the changes to their upcoming budget and suggest ways to ensure their debt commitments remain affordable.

As the economy continues along its bumpy course, and with news that more than a million homeowners have yet to feel the impact of mortgage rate rises, lenders must adopt the best systems and solutions available to support families and protect their lending.

To find out more about how property data can support your business contact Hometrack.

Samantha Partington 16 April 2024
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