Research & policy developments in mortgage arrears

A key part of Housing Rights’ work is assisting clients struggling to meet their mortgage payments, or dealing with arrears. In recent weeks, two research papers and one policy consultation have been released which consider how such arrears can be most effectively addressed.

University of Bristol research on customer perspectives

Following the publication of the Housing Repossessions Taskforce’s final report in 2015, the Department for Communities commissioned research from the University of Bristol into borrowers’ perceptions and experience of mortgage arrears; behaviours and attitudes when in the position of arrears; and where borrowers seek advice when in arrears.

The research found that all key routes into mortgage arrears related to income changes, including job losses, fluctuating income from self-employment and illness. Borrowers typically only realise quite late that their mortgage debt is unsustainable, often using savings or alternative credit to make payments; this means by the time they start missing mortgage payments, their broader financial situation has deteriorated significantly.

One of the most important themes of borrowers’ experience of their debt is communication. “Timely and appropriate communication” is crucial for satisfactory resolution of arrears; however, the research found that lenders will typically initiate contact after the first payment, and often the wording and tone of these communications is problematic for some borrowers. Researchers suggest that there is scope for lenders to strike more open and conciliatory tones.

In relation to advice, the biggest barrier found to borrowers seeking advice was a lack of awareness of what was available; some borrowers were also concerned with confidentiality, and the stigma attached to debt. However, those who sought advice found it positive and helpful for assessing affordability, negotiating repayment agreements, and alleviating the psychological and emotional symptoms of debt.

The report made the following general recommendations:

• The tone of lenders’ communication is important, and should emphasise the positive steps that borrowers can take in an empathetic way
• There is greater scope for consistent application of pre-action protocols, forbearance and common financial statements by lenders, and for consideration of a “breathing space” for debtors who seek advice
• Signposting to independent advice should be given to borrowers at all steps of the arrears process

Housing Rights is currently piloting “early engagement” advice which seeks to engage with borrowers in under two months’ arrears, and who have not been subject to any legal actions for possession. This aims to ensure that in addition to our later-stage mortgage debt advice and the provision of our Housing Possession Court Duty Scheme which assists borrowers facing Court proceedings, borrowers facing difficulties in Northern Ireland can access independent advice and assistance at all stages of their process.

Behavioural Insights research on increasing customer engagement

In the wake of the work of the Repossessions Taskforce, the Department has also been working with the Behavioural Insights Team – a behavioural economics firm which was formerly a unit within the Cabinet Office – to test if and how mortgage borrowers can be encouraged to proactively address arrears issues. The BIT’s second report, testing “behaviourally informed messaging” to customers in arrears, was recently released.

The trial focussed on engagement with customers in long-term arrears. The standard letters of one lender were replaced with behaviourally informed messaging: this was a letter which aimed to be simple, co-operative and which called the borrower to a clear action. The letter was sent in a handwritten, coloured envelope with a handwritten post-it note, and accompanied by a personal SMS encouraging borrowers to get in touch.

The BIT found a large and statistically significant increase in the proportion of borrowers making contact; 62.2% of those receiving the new letters made contact, compared to 45.9% of households receiving the standard letters from their lender. The research concludes that results provide evidence that it is possible to increase rates of contact between lenders and customers in long-term arrears through the use of behaviourally-informed messaging.

Government consultation on “breathing space” for people in debt

In their 2017 manifesto, the Government pledged to implement a “breathing space” scheme, whereby people in serious problem debt could apply for legal protection from further interest, charges and enforcement action for a period of up to 6 weeks.

The Government has just launched a consultation on this proposed scheme. The proposal is modelled on the Scottish Debt Arrangement Scheme, and would initially apply only to England; however, the Government is seeking views on whether this scheme could usefully be extended to Wales and Northern Ireland. It is possible that if individuals in debt engage with relevant advice and support, they could have statutory and time-limited protection – the “breathing space” – from interest, fees and further enforcement actions.