In a few short months, the coronavirus pandemic has completely changed societies and economies around the world. Economic activity has ground to a halt in many countries in order to control the spread of the virus.
These lockdowns have achieved a high level of success, but at an economic cost, one that’s impacted all sectors include banking and lending. Going forward, what lessons should be kept in mind as governments, businesses, communities, and individuals work together to overcome the impact of the pandemic? Taking a look at what’s already happened to lenders provides some useful lessons for the coming months.
1. Lending figures
Lending figures for March demonstrate borrowers and lenders are reacting quickly to the pandemic. The property market was very active in March, thanks to low rates as well as borrowers acting quickly to complete transactions before shutdowns took effect. This trend suggests borrowers are staying informed and reacting rapidly to pandemic-related trends and impacts. This could have implications for policy and other measures in the coming months, including the need to research and track borrower sentiment and behavior to better anticipate market trends.
2. Uncertain property market
The pandemic has created an uncertain environment exposing property buyers to new risks. As banks tighten their lending criteria, buyers could be left in the lurch as banks conduct employment checks right up to the day of settlement and withhold approval if you’ve lost your job or had your working hours cut back.
Whether you are getting a construction loan or end loan mortgage it is essential to stay in constant communication with your lender.
In such cases, borrowers could lose their entire deposit because they fail to secure the critical final approval. Subject-to-finance clauses might not protect borrowers, especially at the stage between issuing final approval and settlement.
Borrowers should communicate with their employers and do their best to confirm their employment security before committing to a purchase. Additionally, buying at auction means no cooling-off period, which brings an added risk.
Similarly, landlords without rent guarantee have also been hit by the economic downturn, with many supporting tenants financially who were unable to pay rent.
Without a doubt, the home buying process during Covid-19 has faced a level of uncertainty.
3. A freeze on repayments
In response to the growing uncertainty, regulators are already moving to support consumers, including for car financing. For example, the Financial Conduct Authority (FCA) has introduced various arrangements to help out borrowers who are having trouble making repayments.
The FCA’s three-month freeze on loan and credit card repayments includes car loans, payday loans, rent-to-own, and other types of lending products. For borrowers who can’t meet repayments, car finance companies should offer a repayment freeze and refrain from ending the agreement or repossessing the vehicle.
Consumers are also protected against companies trying to change customer contracts in an unfair way. Head of motor finance at the Finance & Leasing Association Adrian Dally says motor finance lenders will need some help from the government to continue its forbearance policies towards customers.
4. The impact of COVID-19 on banks
Major banks have recovered some of their market share from the non-major lenders. In the wake of the pandemic, more borrowers appear to be choosing to borrow from the majors, which now claim 60% of the market share, the highest level since 2018. Macquarie’s share has declined from 11.34% to 8.78% whilst ING’s dropped from 3.45% to 2.48%. These have implications for competition and choice for consumers and how regulators might need to address these going forward.
5. Technology and consumers
Technology can serve as an essential tool for consumers, businesses, and lenders. Tech solutions are available to help manage customer journeys as they seek assistance for hardship.
These tools make it possible for lenders to offer personalized support for high volumes of hardship requests from individuals and businesses. As many as half a million people have applied for hardship relief from their lenders since the pandemic set in, and lenders may find it a challenge to offer the kind of customized direction customers need during a difficult time.
Unlike set-and-forget hardship processes, the data-analytics tools available could see lenders using real-time data to accurately monitor the behavior and prevent customers from defaulting.
The process can include confirming declines in income, checking for government support payments, and tracking variations in expenses. Lenders will want to have access to data-analytics tools enabling these processes to be carried out quickly.
This access ensures support teams have the insight they need to assist customers with their hardship journeys as well as to help them avoid ballooning debt and defaulting on their loans.
These data-analytics tools can be set up with trend analyses and triggers to alert customer service teams when indicators suggest individual customers might be heading towards potential hardship. This then lets staff decide to take proactive action to help customers with preventative measures.
COVID-19 has already wreaked havoc on the social and economic frameworks previously taken for granted. The lending sector is a critical sector offering essential products and services for individuals and businesses, so learning from how it’s already been impacted and ensuring it has the right regulations and support could drive a faster return to economic recovery.
One key learning is the vital role played by regulators and government in supporting borrowers as well as lenders. Regulators may also need to address competition and choice of products for borrowers when the situation stabilizes. However, lenders, consumers, and businesses also have fundamental, collaborative roles to play in minimizing disruption and risk and boosting transparency and outcomes for borrowers.