AS the housing market continues its slow recovery, lenders are taking decisive action to ensure tough economic conditions do not result in surging repossession rates.
Yorkshire Bank, owned by National Australia Bank, last year set up a new division to keep a closer eye on arrears and cut the number of customers sliding into serious financial difficulty. Called the Financial Solutions Unit, its remit is to deal specifically with struggling retail customers of Yorkshire and sister bank Clydesdale.
It works as a semi-autonomous unit at Brunswick Point in Leeds and has extended its remit to cover personal loans, credit cards and overdrafts. The FSU is now looking to add a website to its services.
Since the unit started in February 2009 it has worked with about 4,700 customers, helping them rearrange their finances and stay in their homes.
Latest figures from the bank show it repossessed 96 homes in the year to the end of September. That was an increase of 23 per cent on the 78 properties repossessed last year, but the bank said the rate is "low relative to the portfolio size".
Figures from the Council of Mortgage Lenders show 8,900 properties – representing 0.08 per cent of mortgages – were repossessed in the third quarter of the year. The CML expects about 39,000 repossessions for the full year.
Based on its 12.8bn mortgage portfolio and market share, Yorkshire Bank argues its repossessions figure should have been closer to 780.
The bank's total assets 90 days past due totalled 265m at the end of September, down seven per cent on 284m a year earlier.
Tackling repossessions is nothing new. All lenders have systems to control arrears.
But many lenders either spread arrears work among branch mortgage advisers or outsource to agencies, such as Homeloan Management Ltd (HML). HML, owned by Skipton Building Society, works for over 30 lenders managing assets of around 45bn.
Yorkshire Bank said its decision to keep the bulk of this work in-house has paid off.
"Throughout the financial crisis we have taken the view that we are here to support customers, not the other way around," said Graham Grant, head of collections and fraud.
"By creating the Financial Solutions Unit, we have made a very clear commitment to that and the results speak for themselves. If you are going to treat customers in line with the bank's ethos, the only way is to use the bank's people who have the skills and experience of mortgage products and financial management. By outsourcing this work you lose direct contact with customers when then need help most."
Struggling customers are referred by call centres and branches to the FSU. Triggers such as missed payments or a request to transfer to an interest-only plan trigger warning lights at the bank.
"We adopt an honest and realistic approach with customers. Our role is to help them help themselves," said Mr Grant. "Many people think that switching to interest only is the answer, when really it is not – it's a quick fix that is probably storing up a problem for later. We offer advice based on what's right for them in their circumstances; for some it will be a simple adjustment of the days they have direct debits, for others an individual voluntary arrangement may actually be the best option."
However, Yorkshire Bank said the FSU cannot solve every case, and sometimes it refers customers to external bodies such as the Consumer Credit Counselling Service and the Citizens' Advice Bureau.
Yorkshire Bank's latest impairment figures suggest the FSU has a big challenge on its hands, which could get tougher if unemployment escalates and record low interest rates rise. Its gross impaired assets had soared 31 per cent to 766m by the end of September.
Impaired loans made up 0.35 per cent of its loan book in September, compared with 0.24 per cent in March and 0.22 per cent in September 2009, reflecting the difficult economic conditions.
It argues the FSU reduces the proportion of impaired loans which eventually end up in repossessions. Taking the keys to a house is a costly process, involving fees for lawyers, estate agencies and surveyors.
A spokesman said: "We're still going to have impairments because of the state of the economy. It's how we manage these impairments so that they don't escalate. Repossession is always the last resort. It's a long, arduous process. We want to keep customers in their home."
Rebalancing act is paying off
Yorkshire Bank's Financial Solutions Unit has helped about 4,700 struggling customers rebalance their finances.
One customer was on a slippery slope to litigation when the FSU intervened. After suffering a stroke three years ago, he was partially paralysed and unable to work. He had a current account mortgage with a limit of about 140,000, and a property worth 280,000. External debts totalled 37,000.
The FSU agreed to offer a non-standard product on a five-year term.