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Saturday, January 25, 2020

Opinion > Masthaven

What does responsible lending look like?

Shelley Connelly, head of underwriting at Masthaven | 08:45 Wednesday 11th December 2019

Lending responsibly is about much more than a bank managing the risk to itself.

It’s about treating customers with fairness, acting in their best interests and making sure the right outcomes are realised. Now a deeply embedded part of the FCA’s approach, lending responsibly should be a critical business function.

But how does it all work in practice? Here’s an insight into responsible lending at Masthaven.

Robust affordability assessment

Affordability is the bedrock of fair lending. At Masthaven, we train our underwriters to assess with rigour, taking into account a wide variety of factors including:

  • the type, amount and cost of a loan
  • the customer’s financial position — for example, their ability to make repayments
  • existing and future financial payments, such as student loans, pension contributions
  • potential future changes in circumstance which could have an impact on repayments (such as retirement)
  • a customer’s potential vulnerability (which I’ll discuss later)
     

The fundamental aim is to ensure we achieve the best customer outcome at all times. This means assessing applications on a case-by-case basis and putting ourselves in our customers’ position. Being transparent and clear in our requirements helps to ensure our customers understand what we require in order to make a lending decision. 

Being alert to vulnerability

Identifying vulnerability is an incredibly important facet of lending responsibly. While in an ideal world we would want to help all our customers, it’s important that we ensure our borrowers understand exactly what they’re applying for, and that someone’s situation does not negatively impact their affordability.

Vulnerability is hard to define, which is why a flexible approach is needed. This list is not exhaustive, but vulnerable customers can include:

  • people affected by life events, such as bereavement, divorce and redundancy
  • those suffering with mental and physical ill health, such as dementia
  • people being forced or coerced by a third party into doing something that may not be in their best interests
     

We train our colleagues to look for signs of vulnerability when assessing applications.

Importantly, once a vulnerability is identified, this doesn’t necessarily mean we would take the immediate decision not to lend. 

Through the customer’s broker, there are various steps we can take to help, including:

  • giving the customer more time to understand their situation
  • recommending additional support, such as from a charity, health organisation or independent solicitor
     

This approach ensures we are focusing on a positive outcome for the customer. 

Highly trained specialists

Masthaven is an intermediated bank, our applications come through mortgage intermediaries. As this creates a greater degree of distance between us and the end customer, we work hard to foster a responsible ethos throughout the lender-broker-customer dynamic. Our lending specialist team is on hand to support brokers through the application process, and to share knowledge — for example, explaining why we may have had to say no. This helps the intermediary understand our position and ensures they can deal with the customer in an appropriate manner.   

Lending and compliance working together

We have a close working relationship with our compliance team and often use them as a sounding board to provide further insight to ensure we have fully considered the customer’s circumstances. 

Regular monitoring

While we pride ourselves on making the right decision first time, mistakes can happen, and we are keen to ensure we learn from them. This has helped to create a strong culture of quality assurance at Masthaven where we regularly monitor and review applications, and implement changes to ensure that when things do go wrong, we learn from our mistakes.

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