Many mortgage customers are similar, but no two are exactly the same. Every customer has a different amount saved for a deposit, as well as a different income and different monthly expenses. While some have a fixed income, others are self-employed – I could go on.
The fact is, though, that the proliferation of different types of mortgages reflects the diversity of customers pretty well. There are self-employed mortgages, interest-only mortgages, buy-to-let mortgages, and they are all designed to meet customers’ specific needs.
So that’s the problem solved then. Or is it?
Unfortunately, it’s not quite that simple. More and more, lenders are seeing customers apply for products that aren’t fit for purpose, often because they don’t qualify for the products they really want. And that’s where the problems start.
If rising house prices and falling wages mean that a customer can’t get the owner-occupier mortgage they want, for example, they might be tempted to go for a buy-to-let mortgage instead. With the deal done, they move into the house and the lender is none the wiser, until the customer, known to the industry as a ‘false landlord’ starts falling behind on their payments.
The combined risks from product misuse are significant to both the lender and the customer, and most lenders are not even aware of them. With no way to effectively audit the mortgage book, risks can’t be quantified, customers can’t be protected from falling into unmanageable debt and it’s also impossible to ensure compliance with regulatory requirements for capital adequacy.
So what can mortgage providers do about it?
The answer, as is often the case, is to unlock insight from data. By looking at customers’ financial profiles and combining this with data from external sources, such as the land registry or leading online estate agents, lenders can get a much clearer picture of who they’re lending to, and whether they’re lending on the right terms.
Armed with this insight, it’s possible to assess and mitigate the risks associated with false landlords and other high-risk situations, to protect the customer and ensure that regulatory obligations are being met.
If you are concerned that there may be hidden risks in your mortgage book, and you need help to manage the situation, get in touch at firstname.lastname@example.org or see our mortgage strategy article for more information.