Advice review

Supporting customers in financial difficulty

Gordon Reid

business and development manager, The London Institute of Banking and Finance

Rarely a day goes by without a new headline about rising inflation, the cost-of-living crisis, or the state of the UK economy. Behind these headlines, however, is a rising number of individuals and families forced to make difficult financial decisions. The decisions they make now will affect them for many years to come. Financial difficulty also causes stress, which can have an impact on both physical and mental wellbeing. In turn, this can make people more likely to make poor financial decisions, which means they unwittingly worsen their situation. As a mortgage adviser, no doubt you have played a key role in helping many people buy their homes. You now have just as significant a role in helping them identify potential solutions to any financial difficulties – solutions that may even help them stay in their homes. So what can you do?

UNDERSTAND WHAT MAKES A CUSTOMER VULNERABLE

In their guidance, the Financial Conduct Authority (FCA) define a vulnerable customer as “someone who, due to their personal circumstances, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.” They also highlight four key drivers as characteristics of vulnerability: poor health; the impact of life events; low resilience; and low capability. As I’ve already indicated, in many cases financial stress can have a direct impact on people’s health. In addition, increased indebtedness is a factor in reducing resilience. So it’s clear that the current price increases in everything from mortgage interest rates to domestic fuel, petrol, and food, are directly contributing to a big increase in vulnerable customers.

ENSURE THEY ARE TREATED FAIRLY

Once you’ve identified that a customer is vulnerable, you have a responsibility to ensure that they receive the right levels of care and support. This doesn’t mean that you need to have all the answers or be able to provide all the advice they need. You should, however, be able to identify and recommend appropriate sources of advice and support. If your customer is struggling to meet mortgage repayments, you should encourage them to speak to their lender as soon as possible. If their financial difficulties are broader, such as being unable to meet other credit commitments or pay their fuel bills, make sure you’re aware of local debt counselling support facilities so you can encourage your customers to seek broader help. Of course, all of this fits in with the new FCA consumer duty of care, and the additional onus that this places on firms to help deliver good outcomes for retail customers. We’ll be exploring this with industry experts at the LIBF Mortgage Conference in November.

DEVELOP YOUR SKILLS

The types of conversation you’re likely to have with customers who are struggling financially will be more sensitive than the usual. Buying a new home, or remortgaging to raise more money for an extension, are generally positive experiences for all parties. But instead of feeling good and having something to look forward to, many customers who are struggling financially will be nervous, worried, and fearful. That means you’ll need to draw on different aspects of your communication skills. Great questioning and listening skills are still paramount. The ability to reassure customers that their circumstances are not unusual, and that help is available, is something you’re less likely to have much experience in. Empathy is also extremely important. However, in order to help them understand their options, it’s critical that you detach yourself from what they’re going through. This will allow you to prioritise and think logically, without getting tied up in the emotional aspects of their situation.

REVIEWING THEIR MORTGAGE DEAL

Many borrowers may contact you initially to get your advice about whether they should remain on their existing mortgage deal. For those whose deal is due to expire soon, you’ll obviously be looking for the deal that best suits their current needs, wants, thoughts, opinions, aspirations, and concerns. For those whose deals have longer to run, there’s more to consider. How do they feel, for example, about the following?  paying a higher rate for the time being  early repayment charges that may apply if they switch or remortgage  any new fees that may be payable  the possibility that interest rates could be even higher when their deal expires

It’s also crucial to establish what their highest priority is – their current payment, the one they might be making when their deal expires, or even the one they could be paying in five years. Whatever their situation or their long-term goals, how you look after your customers in these difficult times will have a huge impact. M I