Payment shock, are we over the worst yet?

Speaking to a number of experienced advisers over the last few weeks seems to indicate that most consumers have managed the increases. In many cases the increases have meant protection sales have suffered, and some advisers I’ve spoken to have said it’s increasingly difficult to sell or maintain protection cover with re-mortgages. As always, some advisers continue arranging protection by controlling the advice process and robustly analysing budgets to prioritise key expenditure and cut back on non-essentials. It’s our job to ensure consumers are reminded that protection should be considered as priority expenditure.

Some I’ve spoken to consider that we’re over the worst, and I hope that’s the case, but the latest Bank of England (BOE) Financial Stability report suggests we need to be cautious.

The BOE estimates 400,000 borrowers are facing increases of up to 50% in payments between now and 2026. 33% of borrowers (that’s 3 million people) are still paying rates less than 3% according to the BOE.

The report highlights the need to stay close to consumers and ensure advisers are accessible for advice. Failure to maintain contact with clients will lead to vulnerable clients who are unsure of who to speak to, or reluctant to reach out. Lack of contact will also likely mean clients potentially taking the easy option of rate switches with existing lenders.

Encouragingly, repossessions and arrears are still at very low levels, and it’s possible that increasing product choice, lender flexibility, and lower rates means that we have seen the worst of payment shock impact.

It’s important businesses are not complacent, however, and Consumer Duty driven processes are robust enough to maintain contact with customers. Make it easy for clients to reach out for help, understand changing circumstances and recognise that some clients who were not previously considered vulnerable may now fall into this category as a result of increased financial stress.