The Intermediary – December 2025 - Flipbook - Page 13
RESIDENTIAL
Opinion
In-house teams are
unprepared for the
next arrears wave
A
stark warning
emerged from the
UK mortgage sector
last month: six out
of 10 senior lending
executives do not
believe their in-house servicing teams
are ready for a more volatile economic
environment.
At the inaugural Future of Mortgage
Servicing Conference at The Belfry
in Birmingham in November, 100
C-suite delegates were asked a single,
blunt question: “In the face of an
economic environment that is set
to become more volatile, are your
in-house servicing teams ready to
support borrowers?”
The live poll delivered a sobering
result. Almost half (47%) answered
‘no’, while a further 12% said they
were ‘not sure’. That leaves only two
in every five of the lenders (41%)
confident their in-house teams will be
able to cope when the going gets tough.
For an industry that has enjoyed
more than a decade of historically
low arrears, the findings highlight a
growing unease at boardroom level.
Anyone who has worked in
mortgage servicing for more than
a few years knows what economic
volatility really means.
In the early 1990s, the ERM crisis
saw the Bank of England raise the base
rate to 15%. 1.8 million households
slipped into negative equity and
mortgage possessions hit 75,610 a year
– the equivalent of 300 possessions
every working day.
The Global Financial Crisis saw
unemployment rise to 8%, house
prices drop 16%, and serious arrears
climb to 2.3% of outstanding balances.
More recently, the cost-of-living
squeeze – turbo-charged by the shortlived Truss-Kwarteng mini-Budget
and the resulting spike in swap rates –
pushed total arrears cases to 85,000 by
mid-2023, with possessions rising 40%
year-on-year.
Each of these episodes shared one
common outcome: a rapid increase in
customers needing intensive support.
And each time, in-house servicing
teams that had been rightsized for
calm waters were suddenly swamped.
Today’s challenges are different,
but no less daunting, and last month’s
Budget sharpened the risk. Rachel
Reeves is upping rates to 22p, 42p
and 47p on income from interest,
rents and dividends. The Chancellor
is taking tax from 34.7% of GDP last
year to a record high of 38.3% by 203031, with total Government receipts
hiing 42.4%.
Squeeze ahead
The share of taxpayers paying the 40p
or 45p rate will have jumped from
15% in 2021-22 to 24% in 2030-31,
normalising what once seemed like
prey extortionate marginal taxation
(hardly anybody paid the 40p tax rate
in the 1980s).
Rachel Reeves has now raised tax by
about £68bn a year over two Budgets.
The ‘mansion tax’ – £2,500 a year for
homes worth £2m, £7,500 a year for
those over £5m – will compound the
pain. The incomes of borrowers are
clearly going to be squeezed.
Lenders now face both persistent
economic uncertainty and fastevolving regulation.
The Financial Conduct Authority’s
(FCA) Consumer Duty means lenders
must not only demonstrate a higher,
proactive standard of care, but also
must also evidence ‘good outcomes’
for customers.
The combination of volatile
economic conditions and complex
regulation means servicing teams that
worked perfectly when arrears are
MELANIE SPENCER
is growth director
at Target Group
0.8% of the book can quickly become
a regulatory – and reputational –
liability when that figure doubles
or triples.
These teams, designed for a more
benign environment, lack the
scalability to pivot quickly. As one
speaker at the conference noted, even
a modest 20% increase in serious
arrears could overwhelm some lenders
within weeks.
The solution lies in a combination
of process re-engineering, workforce
planning, and critically, technology.
Forward-thinking lenders are
already deploying AI-driven earlywarning systems that flag at-risk
accounts months before a payment
is missed. Automated triage tools
can route cases to the right team at
the right time, while pre-configured
forbearance pathways ensure
vulnerable customers receive swi,
compliant arrangements rather than
generic leers.
Specialist third-party servicers such
as Target Group are seeing increased
interest from lenders that recognise
that building this capability in-house
from scratch is neither quick nor
cost-effective.
Aer more than 45 years servicing
loan books through every economic
cycle imaginable, we know that the
firms most likely to thrive are those
that treat the readiness of in-house
servicing teams as a strategic priority
now, rather than a tactical clean-up
operation later. The lenders that invest
today in scalable, technology-enabled
servicing will be the ones best placed
to protect both their customers and
their own balance sheets when the
next storm hits. Those that don’t
may find that ‘business as usual’ is
no longer an option. You fix the roof
when the sun is shining. ●
December 2025 | The Intermediary
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