There have been increased rumblings about the introduction of so-called “robo-advisers” amongst the UK mortgage broker community over the past year or so. Although the use of robo-advisers is a fairly new concept in the mortgage market, the practice is already well established in the wider field of investment and financial planning – to the extent that RBS is currently planning to replace over 200 investment advisers with automated online and telephone advice systems, with face-to-face investment advice only available to those investing over £250,000.
With some businesses beginning to explore how the same approach might be applied to mortgage advice, it is natural for brokers to have concerns about how this might affect the future of their profession. But how likely is it that automated mortgage advisers will ever completely replace specialist mortgage brokers with their experience of matching customer needs to the right lender and mortgage?
For straightforward mortgage applicants, robo-advisers may well have their place. Software applications already exist to help whittle down the thousands of mortgages on the market to a more manageable handful based on criteria such as the type of mortgage (first-time buyer, home mover, remortgage etc.), the loan amount, preferred product type (fixed rate, tracker, capped etc.) and so on. In this sense, a robo-adviser is simply operating at a level above the filtering functions and calculators found on any mortgage comparison website. And for many mortgage customers with straightforward requirements, this may well be a sufficient level of advice.
In less straightforward cases – and financial and economic shifts in the past few years mean that brokers see more and more examples of these – an automated advice service may be less likely to be able to fulfil the customer’s needs. Would a robo-adviser be able to accommodate a contractor, freelancer or small business owner with a variable month-to-month income and perhaps only one year’s accounts available? What about a customer with past or current debt problems? A customer from abroad buying UK property for the first time, with an overseas deposit source? A mortgage on a property with non-standard construction?
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The fact is, mortgage brokers build up a great deal of knowledge and experience about individual mortgage lenders and their lending policies, the flexibility (or otherwise) of their underwriting criteria, and other factors. In a way, helping customers to choose the best mortgage product is less important than matching the customer’s unique needs to the right lender. This is particularly the case for that ever-increasing percentage of potential customers who mainstream lenders see as “mortgage misfits”.
Robo-advisers may well have their place – not least due to the low cost of the system after the initial investment – and it seems likely that in the years to come many mortgage brokers will adopt this approach to deal with at least some of their customers. However, it seems unlikely that any automated algorithm could begin to replicate the experience and judgement that a human adviser brings to the process; I believe there will always be a place for mortgage brokers to providethe informed, nuanced advice that you can not get from a computer programme.
Perhaps in the final analysis it will come down to customers’ willingness to trust a faceless, automated process with advising them on one of the most important financial decisions in their lives. Responses to the use of robo-advisers in the financial advice sector provides some clues here. A 2016 survey by True Potential Investor found that 65% of customers would only trust a robo-adviser with an investment amount up to £1,000 before preferring to use a professional adviser. Less than 10% would trust it when investing more than £5,000. So, while regulators and some market players may push heavily for robo-advisers in the mortgage advice market in the coming years, it may well be that customers will push back against that trend. Time will tell.
Carl Shave is a mortgage expert and seasoned commentator on financial matters. He has worked in the mortgage industry for 20 years, manages his own independent mortgage brokerage for 15 years and is a Director at Just Mortgage Brokers (www.justmortgagebrokers.co.uk/).