The banks which are partially owned by the taxpayer are planning on dishing out warnings to customers who are behind with their mortgages, telling them to make sure they prioritise paying their home loan ahead of luxuries such as Sky TV.
The pilot scheme is being run by UK Asset Resolution – UKAR – who will contact around 30,000 customers from both Bradford & Bingley and Northern Rock by telephone to warn them of the severity of their financial situation.
The idea behind contacting customers in advance is that some will be helped to avoid losing their home by proactive financial management before the situation becomes irrecoverable.
UKAR are the company responsible for administering the £80 billion worth of mortgages that the tax-payer became saddled with during the banking crisis and is focusing on identifying those homeowners that it believes could end up in severe debt and unable to escape if action is not taken soon.
According to UKAR, around one in ten of its customers was finding it difficult to keep up with their mortgage repayments and was falling into debt with their lender. However, UKAR is not just basing its identification of those with financial problems on their own records, they are also contacting credit agencies to get a better idea of when those with mortgages are starting to have serious debt issues.
One of the key indicators from its own records which UKAR are concentrating on is those customers who are either cancelling or making changes to their direct debit payments, as this could be a sign that commitments are having to be juggled in order to find enough money.
However, the advisors ringing customers will be leaving them in no doubt over how they should prioritise their spending. Customers will be told that keeping a roof over their heads is far more important than paying off a credit card or having the latest gadget or satellite television.
The chief executive of UKAR, Richard Banks, said during an interview with the Yorkshire Post, that mortgagees ‘need to think about what is their most important debt.’
Mr Banks also said that if some customers were struggling now, then they would inevitably find things almost unmanageable when interest rates begin to rise, which most people believe will happen next year. Mr Banks described how homeowners had enjoyed some breathing space created by the record low interest rates but this scenario would not last forever.
The chief executive said that ‘some people won’t cope when interest rates rise, but for others there are remedies.’
The advisors telephoning customers will not just be reminding them of their financial commitment and the consequences they are facing if they do not pay their mortgage. The telephone calls will also involve asking customers how they plan to cope with any increases in the monthly cost.
Mr Banks explained that the idea behind the telephone calls was to get customers to ‘look at their finances and change their behaviour.’
However, getting customers to pay off their debts was not the only solution that UKAR are asking mortgagees to consider.
Mr Banks explained the concept involves helping customers to get out of debt and sometimes that may mean exiting the property without it being repossessed, saying, “We can already see signs of what’s happening in the economy.” He added, ” We are working with customers at a very early stage. In some cases we will help them to an assisted voluntary sale and help them to move out. It’s not helping them if they stay in the property and rack up debts.”