Mass mortgage defaults: What does this mean for borrowers?

End of 2023 to be met with mass mortgage defaults: What does this mean for borrowers? 4 million households are YET to encounter higher mortgage costs – and will do so by close of 2026 – by Zahra Hassan

 


The Bank of England (BoE) has consecutively raised interest rates 14 times since December 2021, bringing them to 5.25%. However, the full ramifications of this are still looming over the economy, with only around 20-25% of its impact having materialized thus far. This comes after new data from the BoE found that UK banks witnessed their highest level of secured loan defaults since 2009, with the net percentage balance increasing from 30.9% to 43.3% in the last quarter alone. At the same time, the central bank indicated that approximately 4 million households which have yet to encounter higher mortgage costs, will do so by the end of 2026, meaning that a majority of households with fixed-rate mortgages are yet to experience the challenges of increased debt costs. In light of this, Zahra Hassan, banking expert and co-founder of Eligible, the UK’s leading AI servicing tool used by Britain’s mortgage lenders, addresses what banks can, and should be doing to track the vulnerability of their customers in defaulting to prepare for when they’re set to see their mortgage payments skyrocket.


AI can be used to leverage insights from customer interactions, behaviours and transaction histories to identify and support vulnerable customers in a period of financial insecurity. Defaults have already increased by 30% in Q2 – the highest level since 2009 – while the number of British adults who missed payments on domestic bills or failed to meet any of their credit commitments before January rose by 1.4m, according to the FCA. Indicating a clear responsibility of banks to help customers struggling to make ends meet, Zafar and Hassan explain that utilising AI and behavioural data can help generate tailored financial expertise to prevent further defaults for struggling borrowers amidst the current economic landscape.


Aiming to facilitate meaningful and timely conversations that revolve around tailored financial support, Eligible was created to bridge the disconnect between banks and consumers. The white-label platform is currently used by a host of Britain’s leading lenders, using AI technology to analyse customers’ financial and behavioural data to detect if they are vulnerable to defaulting. Once potential customers are identified, Eligible work with lenders to provide concise and digestible information that best supports their financial situation, tailoring bespoke communication to assist customers to make informed decisions about the most relevant products and services.



 
Zahra Hassan, co-founder of Eligible, comments:

“The fundamental problem is that mortgages are a financial product that customers take out only once every 3-5 years. This means that they aren’t regularly engaging with their mortgage and aren’t in the loop of what all their options are.

“In a broader sense, rising interest rates, coupled with increased energy and living costs, heighten vulnerability to default. However, the key factor that pushes someone from financial strain to actual default is their lack of awareness about the array of options that their bank could have offered to temporarily ease their financial burden, particularly on their largest financial obligation – their mortgage.

“What’s needed – and what we’re doing at Eligible – is an active two-way dialogue, and AI-powered systems like Eligible facilitate this by initiating interactions with customers and monitoring their responses to gather insights. For instance, we proactively send educational content to customers to assess their anxiety levels and their understanding of their current financial products. Based on this information, we can fine-tune our approach by crafting more personalised educational content and adjusting our tone to be softer, supportive, and empathetic. This way, borrowers can better appreciate that lenders are here to assist them.”
 
Eligible is the the UK’s first platform using AI to provide tailored financial expertise – emphasises the responsibility of banks to proactively monitor customer vulnerability to defaults alongside their need to provide timely support