Martijn van der Heijden, Chief Strategy Officer at online mortgage broker Habito
The watchdog for financial services, The Financial Conduct Authority, recently published its interim report on whether the mortgage market is working well. And its interim conclusions used strong language to firmly come down on the side of “no, it isn’t”.
It highlighted customer confusion, conflicts of interest, archaic processes – a stark verdict which would have been depressing were it not for the FCA’s stated objective “to see whether technology can help improve this”.
Both the depressed current state of the mortgage experience and the hope that technology can change this is borne out by research we at online mortgage broker Habito have commissioned. We saw confusion – for instance, 61% of mortgage holders don’t fully understand their mortgage. We even saw fear – 65% of first time buyers claim the prospect of applying for a mortgage terrifies them. And we saw a lot of time (taking time off work to see their lender or old-fashioned broker) and money wasted – our research showed over half of borrowers are on the wrong mortgage and could reduce their payments by nearly £300 by switching.
So that’s the bad news – yes mortgages is one of the least enjoyed categories in the financial services spectrum, despite its obvious societal need and importance. But the FCA is right – technology can help. We already see the tide turning and a new breed of technology driven mortgage services which are starting to take market share away from unconnected old-fashioned brokers, conveyancers, valuers and lenders.
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The reason for this is the main reason we should all embrace it – the customer demands it. People demand to understand what they’re being sold, for lenders to stick to their promises, for application decisions to be made in hours or days (not weeks), and to engage with the process on their own terms. As a simple example, we see our largest traffic on Saturday, Sunday and Monday night – and notice when the football, Top Gear and Love Island are on. This is great, it means customers demand service of their mortgage adviser and lender, rather than politely wait for what’s allocated.
So where can technology make its impact?
Technology is the key to changing how the whole industry works – beyond just digitisation. Tech can give consumers new tools that make getting a mortgage as easy and as switching as commonplace as changing utilities provider, but with the potential for significantly higher savings. It provides more product choice, more speed and more certainty about the total cost of their mortgage and future payments.
This is how we see technology dragging the mortgage industry into the 21st century:
The mortgage market in the UK consists of close to 100 lenders and over 20,000 different mortgages. The majority of traditional brokers are affiliated with only a few lenders and can scan only a fraction of this market. Even if they did, the human brain cannot hold this many variants so will inevitably make generalisations about customers. This is where the right tech can drastically help improve the chances of finding the right mortgage. Algorithm-based search engines are now at a place where they can, with just a few bits of customer information, analyse the whole market and deliver the best deal in seconds.
Borrowers have accepted long timescales for as long as we can remember – one to two weeks to see an adviser or broker, two to three weeks to get an offer, 6-8 weeks to complete is just seen as the norm. But if you’re trying to bid for your dream home, or your more expensive, reversion interest rate kicks in in a few weeks – why is this acceptable? Online mortgage broking offers a solution to this. In 2016 we introduced the world’s first digital mortgage adviser (DMA) to market, an artificially intelligent chatbot that combines real-time mortgage rates with a customer’s current financial situation (including their employment, salary and future life plans) in order to calculate an indicative monthly payment. It gives free mortgage advice (it’s full advice, not execution only) on what is the best possible deal and is accessible, 24/7 online.
Some online brokers, including Habito, are also using technology to allow customers to get better mortgage deals as and when they become available and applicable, ensuring that they will never pay over the odds. We can remind customers when their existing deal is about to end and help them remortgage in time – avoiding any chance of temporarily slipping onto a lender’s more expensive rate. New technology can also establish whether it is worth switching early or waiting.
In the future, we see technology being able to go even further – for example, being able to confirm an applicant’s borrowing calculations from the get-go by combining open banking and eligibility-enhanced sourcing. Helping consumers identify, at an early stage, the mortgage products they qualify for and helping them assess and compare those products should mean that mortgage ‘illustrations’ and any bank ‘decisions in principle’ reflect the likely decisions to come, avoiding any disappointment for customers when it counts.
Technological innovation holds the key to a more simple, fair and transparent market. It is extremely encouraging to see that the Financial Conduct Authority is recognising the direction the mortgage sector needs to head in. Technology will help both the industry and customers, win.