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Lenders face a potential tsunami of Interest-Only bad debt risk.

It has been well reported about the impending issues relating to Interest-Only mortgages sold during the period of booming house prices and relaxed lending criteria.

Outstanding loans are due to mature in three key waves, The first will hit in 2020 with FCA research indicating these borrowers will be close to retirement age and more likely to have a higher income or accumulated wealth than those who signed deals after 2005.

The second and third phases offer the biggest risk, as these borrowers typically ‘stretched’ their affordability to purchase bigger homes and take advantage of house price inflation – just prior to the financial crash and collapse of the property market.

Fortunately, there is still adequate time for borrowers in ‘waves 2 & 3’ to create a repayment plan – which in-turn will help meet lender obligations and potentially reduce bad debt provision.

Early intervention and two-way communication is critical, however the FCA suggests the majority of borrowers are not responding to traditional lender communications and as many as 14% may no longer be living in the property.

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Just three out of ten Interest-Only borrowers respond to lender contact.

Lenders are under increasing regulatory pressure and scrutiny to ensure customers with Interest-Only loans have a robust repayment plan at the end of their term. Industry reports suggest more than two-thirds of customers are failing to reply to traditional Lender contact – leaving a huge black hole of doubt.

Early and frequent contact is essential to ensure Lender obligations are met and comply with Principle 6 of the FCA Principle for Businesses – “A firm must pay due regard for the interest of its customers and treat them fairly”.

Establishing two-way communication enables the Lender to assess affordability if any variation to the existing agreement significantly increase the monthly payment, or, extends the term into retirement.

The FCA also expects the Lender to contact the Customer and obtain agreement – if they aim to switch the loan from Interest-Only to Repayment.

Positive, early Customer contact will act as a potential impairment indicator and enable Lenders to accurately allocate their bad debt provision.

Trace+Connect will put you back in touch with more customers which in turn will support regulatory and customer obligations.

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The fast, easy and compliant way to
re-connect with Interest-Only customers.

Trace+Connect has a team of specialised staff with a range of sophisticated tools, meaning the large proportion of your customers can be contacted quickly, effectively and fairly.

We expect to make telephone contact with 40 – 60% of your customers.  Once contact is made, our system enables us to directly transfer customer telephone contact to your administration team, or make arrangements for you to call your customer back on the correct number at an agreed and convenient time. This allows you to utilise internal resources effectively, meet regulatory objectives, re-engage with your customers and potentially reduce your bad debt provision.

Instances of Unauthorised Letting may be highlighted – enabling Lenders to correctly charge for the debt. Inadequate repayment plans could also be identified earlier, giving both Lender and Customer more time to consider and prepare alternative arrangements.

A significant number of customers may have moved out of the mortgaged property. Trace+Connect are able to locate their new address and telephone details, then make contact and ‘hot-key’ the customer call to the Lender.

Trace+Connect consistently achieve dramatic results.

After the first point of customer engagement by the Lender (letter/phone call) has returned circa 30% response – we have gone on to establish contact with, or provide positive updated details for 80-90% of those previously deemed – ‘Non-Responders’.

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No result – no fee


> Contact a far higher percentage of customers than using internal resources.
> Improve compliance with regulatory TCF requirements.
> Establish customer contact earlier – allowing improved repayment planning.
> Identify Interest-Only customers who do not have a repayment plan in place.
> Reduce provisions for potential impaired indicators.
> Correctly charge for specific risk (e.g. Unauthorised Letting).
> Update customer database (Correct telephone numbers, correspondence address etc).
> Free up valuable resources – allocate staff to other tasks.
> Reduce Bad Debt Provision – where customers with repayment plans are identified/established.
> Re-engage with customers – protect brand reputation.

Trace+Connect only charge for positive results.
No updated customer details = No charge.

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Bank of Ireland UK Mortgages –
Case study.

Bank of Ireland UK Mortgages has been actively engaged in managing its interest only obligations and in meeting regulatory guidelines. One of the key tenants of this work is our ability to make contact with existing customers in order to establish repayment strategy.

Our own initial contact rates have exceeded industry averages with a 36% response rate versus the industry’s 28%. However we are conscious that despite this, the vast majority remain as non-responders and as a result we have conducted several pilots to improve our contact rates.

In doing so we have engaged with Trace & Connect Ltd to help us and have been delighted with the results that have been achieved to date. So far, after initial contact we have increased our response rates from 36% to 80% with 64% of all customers supplying a repayment strategy.

In addition to these extremely positive initial outcomes we have received superb service and have been kept in the loop on performance on a daily basis as well as receiving quality and detailed data feedback in a timely manner.

The processes adopted by Trace & Connect Ltd has also meant smooth hand over of customers to our telephony teams saving valuable time whilst providing the customer with a smooth journey. In particular the nature of this exercise has dealt with many older accounts where customer data was found to be incorrect or out of date, Trace & Connect Ltd have surpassed our expectation in correcting these records and subsequently making contact.

All aspects of the relationship have been well managed from set-up to reporting, with Trace & Connect Ltd providing us with additional benefits by identifying other customer risks including changed circumstances i.e. gone away, let without consent and hidden residential that in some instances were higher than expected.

Trace & Connect Ltd have made an important contribution to our customer understanding and have dramatically increased our contact rates that will no doubt improve outcomes for customers over the longer term and reduce risks for the Bank.

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