10 minute read
Bricks and clicks
Everybody agrees that the home-buying experience can be improved upon. But, as HSBC’s Christopher Pearson will tell you, it’s ‘not something you can just throw a bunch of algorithms at and think that’s going to land nicely with the customers’. Here, the Head of Intermediary Mortgages at HSBC shares thoughts on reform with Trussle’s Tom Hodgson and Laurean Herepean of FintechOS
2021 saw mortgage approval rates reach their highest level in 13 years in the UK, even as the biggest annual percentage increase in property prices since 2004 pushed the cost-to-income ratio for housebuyers to a new record.
That said, with Bank of England interest rates hovering above zero, mortgage payments were historically low – although that wasn’t much comfort for first-time buyers, struggling to find some of the heftiest-ever deposits as they watched the home of their dreams spiral in value.
As the New Year fireworks fizzled, the property market continued to sizzle. In some areas of the country in January, agents were shifting much of their portfolio within hours. It wasn’t even worth viewing, unless you had the money – or, at the very least, the offer of a mortgage in principle – in your hand.
And all that has made the lending market fiercely competitive, and given innovative businesses – both legacy lenders and digital startups – an enormous incentive to find new and faster ways of bringing mortgages to borrowers.
According to research conducted across 22 countries, including the UK, for the annual European Retail Banking Radar, the public is rapidly becoming accustomed to the digital property-buying experience, too. Back in February 2020, 50 per cent preferred to consult with a branch bank advisor when signing a mortgage contract, while only 29 per cent would submit a digital mortgage application. By March 2021, that had changed markedly: 52 per cent were now happy to research their mortgage online and 47 per cent to apply for one through a bank portal.
In the UK, a new wave of digital lenders and intermediaries are responding to these massive shifts in the £1.6trillion property market – but not only challengers. Major institutions, whose share of the market had collapsed to around half by 2018, are seizing the opportunity presented by recent events and leveraging technology to make the most of them. The 60/40 market split between institutional and alternative lending channels in 2020 led UK Finance to observe that the mortgage market is more diverse and competitive than ever. That’s got to be good news for homebuyers. But what is it they really want?
For Tom Hodgson, commercial director for online mortgage broker Trussle, which was among the early cohort of mortgage challengers to emerge in 2015, improved speed of service is a big part of the mix.
“A customer wants to know ‘can I buy this house? How quickly can I buy this house? Is there anything that’s going to stop me buying this house?’ and the more that we can do to reduce that timeframe – bring speed and certainty earlier in the journey – the better,” he says. “That’s the direction we’ll need to keep going in, to really nail this customer experience point.”
In fact, Trussle stakes its reputation on it – and, given how fast the market is currently moving, that’s probably a good strategy. It promises to deliver a mortgage decision in five days and is so confident of its technology and processes that it backs that up with a £100 reimbursement should it miss the deadline. The company was a runner-up in the country’s best mortgage brokers in the What Mortgage awards in 2021.
Arranging a mortgage is a complex task and knowing how best to expedite that process comes from understanding the choke-points in the existing procedure, says Hodgson. “It was really interesting to see a heavy reliance on automated valuation models, for instance, during the pandemic period. It meant cases were starting to progress quicker through to offer, even when there were obvious
challenges around demand. Some banks still have a service level agreements of 10 days or more [to complete a valuation], so you have this point in the process where it all stops.”
Accelerating the pace of applications is a major undertaking for service providers up and down the mortgage pipeline, and different organisations are taking different approaches. HSBC for example, which increased its mortgage lending during 2020 by 14 per cent, has begun a comprehensive digitisation initiative to help improve the user experience. More than 60 per cent of its gross lending is placed through intermediaries. That means it has to bring everyone in the mortgage chain along for the digital ride by, for example, employing third-party broker tools across CRM systems and lender platforms, and accessing as much information as possible from trusted external data sources for steps such as ID verification and property valuation.
“We’re seeing more automated, desk-top valuations,” confirms Christopher Pearson, head of intermediary mortgages at HSBC, “and more use of Office of National Statistics data, for instance, to assess customer affordability. There’s less throwing pieces of paper around. The components are the same, post-COVID, but the customer experience has changed.”
Companies whose mission it is to meet this need are well-placed to thrive in the newly tech-thirsty mortgage market. FintechOS is one of them. Based in Romania, it works with large financial organisations looking to develop effective solutions quickly in-house. Its solutions are ‘off-the-shelf’ but not pre-made. Instead, its Innovation Studio is a low-code tool that allows non-IT staff to design and construct their own processes.
“They can build software from scratch, or extend functionality on top of the out-of-the-box accelerators that are available in our marketplace,” explains Laurean Herepean, a digital banking product owner with FintechOS. “We’ve seen a high demand for mature technologies, such as optical character recognition, face recognition, liveness detection, video capabilities, and digital signatures, for example.”
At HSBC, AI is being used to help assess applicant suitability. As a global bank with many moving parts, it has the advantage of being able to access large-scale data sets and technology that has already been proved in other areas of the business.
“We’re using AI for financial crime checks across the globe, and the scale of that is vast – something like 600 million financial crime checks every month,” says Pearson.
ON THE MOVE
It’s been an eventful two years in the UK mortgage industry. Here are some of the highlights: 2021 Starling Bank enters the property lending market by acquiring buy-to-let specialist Fleet Mortgages for $50million and inherits £1.75billon in mortgages under management 2021 Atom Bank exceeds £3billion in mortgage lending and goes on to turn a profit for the first time 2021 US-based Better.com seals a deal to acquire online mortgage broker Trussle 2022 Newcomer Monument Bank launches its first suite of property investment products
Not every customer wants the all-guns-blazing, digital-first approach when managing where they and their family will live, though. To be successful in this space, Pearson, Herepean and Hodgson all acknowledge that tech must respect the importance of the user at a human scale; there’s no substitute for personal service to give consumers confidence when faced with what, for most, will be the biggest transaction of their lives. Much as in wealth management – also a high-value, traditionally face-to-face business – success in the mortgage market might depend on how well a provider can sustain a hybrid human/digital offer, leaving the borrower to choose how they wish to interact with
the lender... in person, fully online, or as they feel appropriate to their level of stress and uncertainty. Trussle learned that lesson early on.
“To begin with, we thought everyone has to interact online, and that’s the only way that they can come through the journey,” says Hodgson. “Now, at Trussle, we allow customers to come to us however they want – be it online, by phone, by web chat and bounce between these channels, in order to go through the process. They can choose how to start it and how to manage it. But if they want to speak to someone, we’ll always make that available to them.
“There’s still a reliance on human interaction because, for lots of people, it’s a sophisticated product, and they want to be guided through it,” he adds. “Pushing everyone down to an automated execution-only route would probably end up in a worse place for customers, overall. We want people to get financial advice in this process, rather than self-select if they don’t have the knowledge to do it.”
The winning strategy in this scenario is implementing tech to identify and displace the appropriate, often back-office, elements that don’t need in-person interactions.
“We’ve been working on that for the last six years,” says Hodgson. “Things like the online fact-find, so, rather than doing two-hour interviews in branch, you do it online. And looking at online credit pools, electronic ID verification and assessing affordability online.”
That sounds a lot like what Pearson is attempting to do at HSBC. Trussle, in fact, has taken a leaf out of the big bank’s book and made known it intends to partner with 1,000 brokers in the field this year to increase volumes. Which begs the question: how will these type of competitor carve out their own niche?
Even given his digital manifesto, Herepean accepts that the human touch will ‘probably remain critical to building trust’ – as wells as market share.
“I don’t think that the key differentiator for a bank is to compete on rate or technology alone; I think that competing
as a coach, or as an advisor, could be the key for success,” he says. “It’s about hyper-personalisation. You need to understand the customer’s needs, in order to provide the right product for that client.”
The technology key to successful broker-based businesses could be APIs. With this tech in place, sections of the broker process can be automated, allowing customers to solicit more quotes at a faster rate, all with the personal guidance from their preferred broker. Hodgson believes APIs can be used to massively expedite processes like the decision in principle (DIP) indicator.
“From a broker’s perspective, if we can expedite DIP processes across multiple lenders, at a point in time, we can really give a customer confidence that they can get a mortgage, and at what rates, and at what mortgage amounts. That’s one of the things that we’re most excited about – working with lenders to be able to bring DIP certainty at the point of advice.”
For APIs to work efficiently for brokers, a sufficient number of lenders needs to be integrated, but the momentum has built over 2021 and will likely continue in 2022.
For Pearson, open banking is going to be the real game-changer in mortgage processing, allowing lenders to see specific financial information, so they can make a decision without waiting for documents to be gathered and uploaded. Having insight into more and better information instantly both improves the customer experience, but also reduces the risk for lenders, perhaps opening the way to more innovative products – something sorely needed in the mortgage market.
Pearson also believes there may be increased scope for different types of organisations to work together more.
“I think it’s highly likely we’ll see more collaboration – perhaps, with embedded lending, now that there is more agility, through Cloud-based computing and the ability to link in certain component parts of that through API methodologies.”
With this in mind, what type of organisation will grow to dominate the UK mortgage space? It’s an industry that has seen a boom in brokerage firms, a flutter of
mergers and acquisitions, and times of boom and bust, all within the last decade. Newer, nimble banks have already started acquiring whole mortgage companies, such as Starling Bank’s 2021 acquisition of Fleet Mortgages.
Trussle was itself the subject of acquisition last summer – by US online broker Better.com, which went on to add the UK's Property Partners to its portfolio. When Better made its move, it was quoted as saying: "We researched the UK market and were surprised to see how we could make it so much better for consumers buying and financing a home for the first time." Ouch!
The only way to be innovative, it seems, is by adopting a hybrid strategy – one that gives borrowers confidence while accelerating decisionmaking and lowering risk for lenders. Who is best placed to do that and how will probably shape how this market matures.
Tom Hodgson, Trussle
I don’t think that the key differentiator for a bank is to compete on rate or technology alone; I think that competing as a coach, or as an advisor, could be the key for success
