2023 is crunch time for NZ borrowers and lenders, with around 50% of outstanding mortgages currently fixed but due to reprice in the next 12 months.
Many will be looking at a change in mortgage rates of 2-3% and this is the ‘wave’ that many borrowers are dreading, and lenders may lack the resources to tackle.
Borrowers are getting anxious, with homeowners who fixed their loans at historically low prices between 2020 and 2021 now forced to refinance at drastically increased interest rates.
Lenders are also under pressure, facing a raft of critical decisions that need to be made in order to pe prepared. Those who can’t distinguish their best customers from those at risk of hardship will miss vital opportunities emerging in this challenging lending environment.
With profitability always a top priority for lenders, the strain is starting to show. Banks are setting aside greater allowances for potential bad debts, while arrears are rising (from a low base). There has been a rise in bank discounting and increased cash backs.
Armed with the right strategies and digital tools, lenders can be primed and ready to optimise lending strategies for customers with highest serviceability, prevent at-risk customers from reaching the cliff edge and catch hardship customers who do topple over.
“We’re here to support banks and lending institutions with the most intelligent data and technology available,” product, data and analytics executive Tim Jenner says.
“This way, banks can build proactive, scalable strategies to help manage the refi wave and still deliver a recession proof customer experience.”
1. Know your best customers
Which customers have the highest equity and the biggest buffer against interest rate hikes? When you know these customers, who may be less sensitive to changes in the market, you can target them for prime retention offers.
By targeting your optimal customers – those most able to manage through higher interest rates – you give yourself the best chance of shoring up your loan base in difficult economic times.
In a rate-driven market, however, your best customers will be harder to retain, just as the best refinance prospects will be harder to win.
Smart property data and mortgage solutions can help you identify and analyse your most resilient customers, placing you in the driving seat for strategy development. Creating the opportunity to supercharge your refinance and retention strategies.
Calculate a dynamic Loan to Value Ratio (LVR) for every security, then ringfence high-equity customers for your top financial products, using Portfolio Analytics.
With early alerts of listing activity from Propensity to List (PTL)/Property Monitor, you can use targeted nurturing to stay close to your customers.
Get detailed property data, insight and reporting at your fingertips, allowing you to support customer engagement in the long term. With the insights yielded through Digital Property Reports, you can help homeowners make smart financial decisions through every stage of the property-owning life cycle.
2. Know your customers at risk of hardship
A proportion of customers will inevitably suffer hardship as economic pressures bite. With more fixed loans needing to be repriced, serviceability will become harder for customers with fewer resources to fall back on.
Increased unemployment levels and rising household costs, driven by inflation, will cause an uptick in distressed sales. This could place downward pressure on property values, making it harder for lenders to recover mortgage debt if people are forced to sell their homes, or in the worst case, foreclose.
Our digital mortgage solutions can help you develop strategic plans to alleviate customer hardships through extension of a loan period, sale of property, or renting out.
Identify and use the customer’s equity position to pinpoint hardship quickly. Access Portfolio Analytics data to surface customers with high and risky LVR, then monitor them for potential difficulties.
Easily identify locations at risk of declining value, where it’s harder for customers to meet financial commitments and refinance their properties. Geo-Risk offers critical Propensity to Decline statistics, modelling areas with the probability of 15% value decline over the next eighteen months.
3. Know where your opportunities lie
There are plenty of opportunities to target non-home loan customers, as well as those holding mortgages with your competitors.
Data-driven insights mean you can upsell or cross-sell refinance or insurance products to existing customers. Tailor the offers to the right customers, and work out where your best prospects for new business lie.
Find non-home loan customers with low LVR mortgages at OFIs, and work out their estimated equity. With Home Elsewhere, you can engage flagged owner occupiers likely to list for sale, using targeted messaging.
Focus on locations of mortgage resilience and opportunity, by accessing distance, density and Propensity to Decline statistics. Geo Risk opens the door to fast-track opportunities in blue ribbon locations.
You can also flag early notice of customers who have listed for sale (or are most likely to), ahead of a rate reset, via PTL/Property Monitor.
Mitigate the fallout from the refi wave. Reach out. Ask your Account Director or visit our Banking and Lending page to learn more about how CoreLogic digital mortgage solutions can work for you.