MogoPlus, the global expert in bank transaction data insights, has today launched a Mortgage Stress Predictor, a predictive insights solution to help banks and borrowers proactively manage the looming fixed rate cliff and prevent customer financial stress.
Against the backdrop of higher interest rates and weaker house prices, the Reserve Bank of Australia has estimated that some 800,000 fixed rate mortgages representing loan liabilities of $500 billion are due to be refinanced in 2023 alone.
With refinancing volumes soaring, banks are being challenged to manage customer retention and the associated shrinkage in loan books. Borrowers may face an affordability problem under responsible lending standards as their new mortgage interest rate will be higher and, as housing costs increase, financial stress, vulnerability and hardship may be experienced.
Whilst banks have tools to analyse their overall portfolios, until now, there hasn’t been a strong uptake or choice of analytics with the ability to predict future financial stress at the individual borrower level.
The MogoPlus Mortgage Stress Predictor solves this problem.
This new solution uses the latest predictive insights to understand how an individual customer’s future ability to service their mortgage will be impacted by higher interest rates and the ongoing inflationary cost of living pressures.
It draws on accurate income and expense behaviour to deliver predictive insights before a refinancing event happens and identifies potentially vulnerable customers earlier in the cycle. The existing lender can then engage in a proactive and responsible conversation with the borrower about options.
“When it comes to customer retention, one of the first things a lender needs to do is to understand each borrower better,” said Mike Page, MogoPlus CEO. “Our Mortgage Stress Predictor enables a bank to get ahead of these issues, and take proactive measures to help that individual customer,” he continued.
“At the peak of the pandemic housing boom, it was possible to get a fixed rate loan with an interest rate of 2% per annum or less. As those loans mature, borrowers will need to navigate higher interest rates, the impact of LVRs on softer property values, and the monthly hip pocket impact of inflation on their cost of living. Those dynamics are already quite challenging and are still evolving,” said Mr Page.
MogoPlus enables enterprises to make fully informed customer decisions through descriptive and predictive data insights. The global fintech offers lenders a comprehensive suite of solutions tailored for specific credit products including home loans, credit cards, personal loans, buy now pay later, mortgage refinance, hardship assistance and business lending.
“As a leading global fintech that specialises in credit analytics, our strategy in Australia is to offer cutting edge data insights to our bank and non-bank clients to power a new age of decisioning. That’s why we developed the Mortgage Stress Predictor, so lenders can understand who affected borrowers are, and deliver that customer focus using technology, rather than having to increase headcount,” said Mr Page.
According to Sacha Close, Founder of Women in Credit Risk Australia and an expert in credit risk & collections, the earlier a lender can get on top of any problems, the better the outcome.
“Often customers don’t know when their loan interest rates will expire, and they cannot predict how increased mortgage rates and inflation costs will impact their budget. Many households are already facing financial stress and are focused on keeping their heads above water. It is almost impossible for most customers to predict the new repayments and this can catch them off-guard,” said Ms Close.
“As banking industry leaders, we are responsible for supporting our vulnerable customers in understanding the impacts as far in advance as possible, so they can begin to change their behaviours and to plan. Modelling tools that use personal spending and saving patterns are critical to identifying not just vulnerable customers but all customers who could be shocked by significant changes to future repayments,” she continued.
The MogoPlus Mortgage Stress Predictor will also help banks and their employees comply with regulatory and ethical obligations such as APRA’s APS220 on Risk Culture, the Banking Code of Conduct and the Financial Accountability Regime.