UK Car Lending

Individual and tailored – how technology will change the future of mortgages



“Whether we buy artwork on Amazon, from fish and chips to the local chippy, or order a cab, all roads lead back to the ease of use of technology on a mobile platform that has become the new standard. “

I recently read an article by Martin Reynolds, CEO of Simplybiz Mortgages, on the future of mortgages. In his article, Martin predicted that the technology would allow lenders to offer tailored mortgages and counselors to focus on what they do best, offering advice.

He sees a world where technology makes it possible to move from traditional data capture to a customer-centric approach; a world where procurement systems become bidding platforms where lenders bid for business. I agree. But why do we think this will happen? To establish the direction of change, let’s first look at change in other industries.

Over the past decades, we have seen significant changes in other industries, such as the automotive industry. When you order a new BMW through the BMW Individual program, the end product is as unique as you are. It is an extension of your character and your personality.

What is preventing the mortgage industry from doing the same? After all, mortgages are considerably simpler in design than a car. For this to happen in our industry, we need stakeholders across the spectrum to be creative, leaders with a vision to create a better deal for customers.

For some companies, it would be too difficult to change the excuses we’ve heard before: “We’ve always done things this way, why change now” or “Our systems can’t support this”, or “It” is a massive undertaking and we don’t have the resources for it.

Everything is valid, I guess, and not too different from the comments made by many in the mobile phone industry in the early 2000s. In June 2007, the world of mobile phones as we know it changed forever when Apple released the iPhone 1. At that time, Apple was far behind other cell phone makers, but had the courage, leadership and know-how to create something they believed in. the world will need in the years to come.

What is preventing the mortgage industry from doing the same? I believe that as an industry we are approaching our own iPhone 1 moment. Ignoring for a moment macroeconomic forces, especially the current green revolution, I believe there are three forces that will shape the future of mortgages. They are:

Technological progress

Technology has changed and reshaped many industries over the past two centuries, but the pace of change in recent times cannot be ignored. The examples cited above serve as proof. Against this background, the way we solicit, underwrite and close a mortgage is still very fragmented and awkward. But that is about to change.

Initiatives such as Open Banking, facial recognition and identity verification software, electronic signatures and tailor-made application programming interfaces (APIs) already make it possible to open a bank account in minutes. This technology is also poised to change the mortgage industry, but we could go even further.

We might recognize that every applicant, every property, every application is unique and could design products around that uniqueness. How many apps have advisers captured on a lender’s systems only to find after 15 minutes of foreclosure that the lender isn’t accepting old apartments with bridge access, for example. Incredibly frustrating and a waste of time.

Technology allows us to do this differently, to assess the risk associated with lending against a property with access to the bridge. Rather than saying no, we don’t lend against properties with patio access, the lender could counter-offer and increase the price of the mortgage to mitigate the additional risk. But this process needs to be dynamic, in real time, and not as part of the current 24 hour service level. What we’re talking about here is real-time underwriting and pricing of a mortgage as information comes to light. Machine learning and artificial intelligence can already cope with the majority of permutations in this regard. Naturally, this leads to the production in real time of a mortgage offer.

Ease of use

When we put ourselves in a client’s shoes to understand what they want from their advisor, it boils down to two things. First, the best mortgage deal they could get for their situation, and second, certainty. The certainty that the advisor and the lender will keep their word and honor the promise of a mortgage loan.

These two things are taken for granted, but there is a third – ease of use – which is becoming more and more important. The likes of Amazon, Uber, Deliveroo et al. have set new standards for ease of use. I could have called it “service standards,” but it’s a term used by advisors and lenders that means little to the client.

Ease of use is more appropriate through their lens. Because the bar for “ease of use” is set so high in other industries, it has become the norm in society. Whether we buy artwork on Amazon, from fish and chips to the local chippy, or order a cab, all roads lead us back to the ease of use of technology on a mobile platform that has become the news. standard.

Fewer and fewer clients are willing to spend hours entering a mortgage application or trying to explain their situation over the phone. Most expect an instant answer, an instant yes or no and they expect this as a notification on their cell phone. Lenders and advisors keen to change their habits, keen to change their systems and their approach to helping clients in the way that works best for them are expected to be successful over the next 10 years.

Opportunity cost

Let’s go back to the lost opportunity mentioned in the previous example; lenders are unwilling to accept old local authority apartments with bridge access. How many of these examples can we still cite? There are literally hundreds of criteria permutations on product and criteria sourcing systems. These are all small stumbling blocks, obstacles that overly and unnecessarily complicate the mortgage creation process.

Another way of looking at it would be to put a price on each of these stumbling blocks. For example, charge an additional 20bps to mitigate the risk of an old community apartment with bridge access (rather than deny the app), or if the customer is willing to reduce the LTV from 80% to 70%, we let’s reduce the price by 50bps and so on. In this way, the advisor and lender can turn each of these criteria into an opportunity, designing and delivering real-time bespoke mortgages to fit specific client circumstances. An opportunity to revalue the risk and the opportunity to increase the overall conversion rate. If done eloquently, this new way of creating mortgages should not only save time, but also make business sense.

Perhaps we are at the foot of a new wave of innovation in the mortgage industry. The technology is there and it is up to advisers, lenders and transport agents to embrace the change. Those with a vision can flourish.



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