Is the mortgage market reaching a tech tipping point?

Mortgage Strategy

The following piece about Eligible appeared in Mortgage Strategy on 8th August 2018.

Click here to view the original article

A few years ago, if writing about how the pace of technology had changed the workplace, it may have been necessary to provide examples to serve as a gentle scene-setter.

However, the infiltration of technology into all of our lives has been so aggressive and encompassing that doing so doesn’t seem necessary.

While financial services as a whole appears to be redefined by ‘fintech’ on a daily basis, the mortgage industry has so far remained comparatively static. But why is this the case?

Slow cooker

“The lag versus other areas of financial services is likely because of the relatively complex sales process for mortgages and whether they are advised or not.

“In the case of lifetime mortgages, the potential vulnerability of some older customers and the traditional route of face-to-face has meant technology has not been a primary focus,” says OneFamily managing director (growth division) Nici Audhlam-Gardiner.

She also cites heavy regulation.

“While it’s been a decade now, it’s easy to forget what a systemic shock the financial crisis caused – and mortgages were at the heart of this,” says Eligible chief executive Rameez Zafar. “All stakeholders… had to reflect on what caused this and how to allow the market to recover without allowing the mistakes of the past to occur again.

“As a result, innovation was not ‘slow’ per se – but rather was constrained within an industry facing intense scrutiny, changing regulations, and lenders/brokers placing emphasis on financial conduct.”

Audhlam-Gardiner feels we are at a tipping point with tech in the industry.

“I believe further tech development is imminent,” she says.

“Initially the likely focus will be use of data and technology, for example the use of application planning interfaces with banks to collect affordability data from open banking, which can reduce the onus on the customer to provide information, as well as increasing accuracy.”

Zafar also points out that, “while other industries were being disrupted by tech solutions that led from the front-end by improving the customer experience and helping salesforces actually sell – technology in the mortgage industry became further entrenched in the back office.”

Landbay managing director of intermediaries Paul Brett adds that, “there are only a few major system providers in the market which are used by most lenders. This means that technologists with knowledge of mortgages probably don’t have that many companies to move between. This restricts the cross-pollination of knowledge which is the breeding ground of new ideas.”

“However,” he says, “there will be a tipping point, and due to the exponential nature of technological advancement once the tipping point is reached it’s likely we’ll see a lot of changes. The ecosystem of new services and technologies will galvanise itself.”

I need your clothes, your boots, and your mortgage documents

Robo-advice, software that uses algorithms and mathematics to provide financial guidance, has been making inroads in many areas of financial services – particularly wealth management – to the consternation/glee of many (delete as appropriate). At first glance it may seem ideally suited to the mortgage industry, but few people Mortgage Strategy spoke to on the subject agree.

“I personally cannot see a true robo-advice proposition taking off without any human input or influence. It becomes too risky for the company/advisor and regulator. The Mortgage Market Review was mainly focused on advice and that will need to remain,” says White Financial Services managing director Dan White.

Zafar, too, sees robo-advice as something of a dead end: “It’s very important to remember that the home-buying process is one often the largest financial transaction someone will ever do. They want to talk to a real person about this; someone who is an expert and someone they can trust.”

BespokeFinance founder Adam Hosker says: “Unless the regulator brings back execution-only, programmers building a robo-adviser will hit a wall… our clients are not vanilla, neither are there homes or lenders.”

He instead points to what he calls ‘cyborgs’ as a more likely development, a “mortgage adviser whose abilities are extended beyond usual adviser limitations by elements built into the back-office software.”

He paints a picture of this cyborg-advisor not hunting down Sarah Connor, but retrieving notification of a new case with all necessary documents to hand and verified via integration with credit agencies, open banks, and valuation models.

“The system would have sent out the IDD and checked sanctions list, retrieved back an e-signed GDPR Consumer Privacy Notice saved into the client’s file, without adviser interaction… the adviser [is] no longer playing administrator but ready to advise, all facts in hand,” he says.

One Mortgage System managing director Neal Jannels brings up some market research his company conducted, saying that one broker, “recently input a case 11 times from fact find to completion.  If that takes 15-20 mins a time, you’re talking about a vast amount of effort for one user to keep reinputting and potentially 11 times that it can go wrong.”

“This is where technology can really make a difference, in terms of supporting brokers and saving them time.

His summary is positive: “Technology will never replace the experience and knowledge of an established broker,” Jannels concludes. “What it should be doing is making the client/broker journey as simple and effective as possible in order for the broker to turn cases around as quickly as possible… [to] replace the manual work allowing for time to be better spent dealing with new clients.”

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