12 minute read
Market review
Diversity and inclusion: it’s good to talk
Craig Calder
director of mortgages, Barclays
October marks Black History Month in the UK, and this year’s theme, ‘Time for change: action not words,’ represents a strong message that should resonate with us all.
Here at Barclays, one of our principal aims is to make every one of our colleagues feel comfortable being themselves at work. It’s central to our culture, and we nurture it through activities and initiatives, and building networks for colleagues to connect.
Diversity and inclusion should be key words in any business, and it’s a huge positive to see such progressive strides being made across the mortgage market in recent times. However, this is not a tick-box exercise – it’s a movement that should be embedded within company cultures for a number of reasons.
Looking at this in a business and commercial sense, diversity and inclusion can open the doors to increased profitability, creativity, stronger governance, and better problem-solving, because employees from diverse backgrounds bring more of themselves in terms of new ideas, perspectives, and experience. Having a diverse workforce makes organisations more resilient and more effective, and they tend to outperform less-diverse organisations.
As an industry, I think it’s fair to say that – despite significant progress being made – we are still not as diverse or inclusive as we could or should be, and our progress must be tempered by the knowledge that there is still some way to go. This was highlighted in AMI’s second Viewpoint report back in October 2021, which found there was definitely an “appetite for change,” with 82 per cent of respondents saying they felt diversity and inclusion were important and just five per cent saying they didn’t think it was important.
However, those surveyed, especially from minority groups, also reported discrimination in the workplace and at industry events, raising concerns around culture and leadership. More than 40 per cent of respondents said the mortgage industry attracted a representative workforce. This falls among women, LGBTQ+, and ethnic minorities to 35 per cent for women and 36 per cent respectively for the latter groups. When employees think their organisation is committed to and supportive of diversity, and they feel included, employees report better business performance in terms of ability to innovate (83 per cent uplift) responsiveness to changing customer needs (31 per cent uplift), and team collaboration (42 per cent uplift).
So what more can be done? Simply asking this question is a great starting point.
Talking and listening are key in attempting to get to grips with these issues. Diversity and inclusion have featured heavily in our Mortgage Insider podcast series, and past episodes – “Diversity and inclusion in broking,” with Sidney Wager and Sophie Lowndes-Toole; and “Diversity: Pride month,” with Nancy Kelley, CEO of Stonewall, and Hannah Bernard, head of business banking at Barclays – have both tackled these topics extensively. And a more recent episode, “Breaking down barriers,” with Sarah Tucker and Jamie Lewis, co-founders of The Mortgage Mum, was released to coincide with International Women’s Day. All of these are available to listen to online.
As a company, we will continue highlighting such issues whilst accepting there are still many knowledge gaps, and curiosity will drive further education. For businesses, it can be as simple as asking themselves the question, “Are we representative of the communities we serve?”
There are many charters and government initiatives that are helping people to take a good, hard look at themselves and their businesses. The Race at Work Charter may be a good starting point for some. This was launched by Business in the Community (BITC) in late 2018, with the aim of tackling ethnic disparities in the workplace.
This charter is composed of five principal calls to action for leaders and organisations across all sectors. It also outlines that action by employers could boost the UK economy and lead to increased productivity and returns in the workplace, and points out the following. Race equality in the UK will potentially bring a £24 billion per year boost to the UK economy – 1.3 per cent of GDP, equating to £481 million a week. Organisations with more diverse teams have 36 per cent better financial returns. Only one in 16 people at senior levels in the private and public sector are from an ethnic minority background.
In a purely business sense, diversity and inclusion open the door to better recruitment, greater innovation, stronger employee retention, and an enhanced understanding of client demands. These factors are relevant to firms of all shapes and sizes.
Diversity and inclusion may not the easiest topic at times, but we as an industry need to become more comfortable having these conversations in order to continue moving forward and create real change. M I
Jerry Mulle
MD, Ohpen
Alot has happened since July.
It’s forgivable that, compared to Russia’s war in Ukraine, the energy crisis, the death of the queen, the removal of Boris Johnson, the appointment of Liz Truss as prime minister and accession of Prince Charles as king, the mini budget delivered by Kwasi Kwarteng, and then Kwarteng’s dismissal, financial regulations might not have been top of mind.
Still, the Financial Conduct Authority’s (FCA) confirmation of its new consumer duty regulation, which is set to come in from 31 July next year, giving firms 12 months to develop systems that allow them to deliver against expectations, is pressing.
To recap, the FCA’s new consumer principle requires firms “to act to deliver good outcomes for retail customers.”
In the regulator’s own words, the changes include “cross-cutting rules providing greater clarity on our expectations under the new principle and helping firms interpret the four outcomes” and “rules relating to the four outcomes we want to see under the consumer duty.
“These represent key elements of the firm-consumer relationship which are instrumental in helping to drive good outcomes for customers,” said the paper, published by the regulator in July.
The outcomes to which the incoming consumer principle relate include products and services, price and value, consumer understanding, and consumer support.
The FCA’s announcement stated, “Our rules require firms to consider the needs, characteristics, and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey.
“As well as acting to deliver good customer outcomes, firms will need to understand and evidence whether those outcomes are being met.”
This is big stuff, too. At first glance, it might not hold a candle to the events of the past eight months, but make no mistake – this is a significant shift in regulatory thinking.
How firms interpret the new rules and, crucially, how they opt to provide evidence of their adherence to them is going to be the single biggest regulatory challenge lenders and, indeed, all regulated firms face over the coming months. And it is not like there are no other things to worry about at the moment.
Inflation is a nightmare, yes; interest rates and what to do with customers in arrears are hellish to deal with. But protecting yourself against the enforcement action that could be taken against you as a regulated firm if you fail in the new consumer duty is a real and present threat, too.
This is the standard by which firms will be judged when reacting to customers failing to deal with rampant inflation, the loss of a job, or the inability to remortgage at the end of a two-year fixed rate that jumps from 0.89 per cent to five per cent overnight.
Lenders have been told they will be held to account. To reiterate, the rules “require firms to consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey.”
It is standard for the FCA to provide guidance to firms on how to meet regulatory expectations. The guidance relating to these rules conforms to type.
“Firms will need to understand and evidence whether those outcomes are being met.”
The question is, how?
What are you measuring? When are you measuring it? Why do you think it’s the right thing to measure? And if you can come to a landing on these points, do you have the operational bandwidth and capability to integrate these decisions into processes and models? It all points to a hard time for those unable to make changes easily. I’ve said before how agility in systems is crucial, but every month something new comes along to reinforce the point. If you cannot cope with one set of market or proposition changes, what hope is there of delivering change on multiple fronts?
Of course, the answers to these questions will depend on the service you offer, the products you sell, when you sell them, and to whom. But they are not straightforward to work out, not by a long stretch.
It is not always simple to define financial vulnerability in a stable economy; but these rules do not even restrict the definition of vulnerability to the financial, and we are not in an economy that could be described as stable.
Regardless, regulated firms will be held to account where consumer outcomes are deemed by regulators not to be “good.” Proving your business is not culpable will be imperative.
Setting aside the moral and philosophical breadth of interpretation when it comes to words and ideas such as “good” or “value,” firms must find a way to prepare.
They must also be prepared to flex processes to measure their delivery of these new rules, because expectations will change. Operational excellence and efficiency will come to mean something else, and the ability to flex systems for commercial reasons is as important for regulatory reasons as any others. M I
The changing nature of efficiency
Steve Carruthers
business development director, IRESS
For the past decade, IRESS has carried out annual research with lenders from across the industry to discover how those in operations have evolved their approach to efficient lending over the past year and to take a snapshot of the risks, challenges, and opportunities they see and deal with.
Part of the value we think carrying out this research year in, year out offers is that it plots the course taken by those operating in the mortgage market. Understanding how challenges emerge and how the industry meets them is hugely helpful when it comes to planning.
Last year’s survey was perhaps the most extraordinary we have carried out over the past 10 years, giving unique insight into how lenders dealt with the onset of lockdown and all the challenges that the pandemic brought with it.
This year’s is equally illuminating. 2022’s Mortgage Efficiency Survey includes insight garnered from 37 lenders who took part in a series of detailed research interviews. Affordability assessment, the vital role that brokers play in client selection and application conversion, and investment in technology and digital security were mentioned again and again.
In spite of eye-watering inflation putting such enormous pressure on borrower incomes, most lenders have remained focused on core efficiency improvements designed to improve customer experience, technological efficiency, and digital tools.
Flexibility and adaptability proved critical when the pandemic hit, and are no less crucial today. What these terms mean in the here and now changes daily, and it’s this that really comes through when looking back over previous reports.
Take 2021, twelve months after lenders had to pivot their operations overnight to accommodate lockdown rules. They said at the start of the year that, having been forced to adapt, it was extraordinary how much they found they achieved.
What it has shown those managing lender operations is that adapting isn’t something you can do once and be done with it.
The past two years have seen Brexit delivered, a global pandemic, unprecedented emergency public spending to support people and businesses through it, a stamp duty holiday and 95 per cent mortgage guarantee scheme, the launch of the starter homes programme, Russia declaring war on Ukraine, a cold war waged against Europe by starving us of energy supply, inflation scaling 10 per cent, energy support bailout packages, rising interest rates, a new prime minister, the end of Queen Elizabeth II’s 70-year reign, a new king on the throne, and a mini budget from the third chancellor in the Treasury this year – who was promptly sacked and replaced by a fourth.
Markets have been incredibly volatile. The pound is all over the place.
In practice, this means that how we define efficiency has changed constantly. In just the past couple of months alone, the mortgage market has seen how it understands efficiency change again. As the Bank of England (BoE) has raised rates, lenders have had to replace products more swiftly than has been necessary for years. And it’s on the BoE’s timetable – not just in response to competitive ebb and flow on pricing.
In fact, that ebb and flow has become more of a rip tide in today’s market. It’s a race not to be the last best buy standing rather than a jostle to the top. Lenders are really struggling in some areas as applications flood in following a competitor’s product withdrawal.
In the past, efficiency has meant tight application packaging, clear and predictable criteria, slick interface with intermediaries and underwriting that speeds up the approval process. These measures still matter, but product design and speed to market are now imperative efficiency measures.
Lenders want to lend, but it’s become harder to control how this is achieved. It is not just base-rate hikes that trigger product overhauls; lenders hiked mortgage rates within days of the chancellor unveiling the government’s growth plan and massive tax cuts for business and high earners.
The pound’s plunge that followed the budget left funding costs reeling. Swaps spiked; near-term rate expectations and long-term expectations were all over the place.
This has enormous ramifications for lenders’ already fairly skinny margins, and fast and efficient responses are the difference between profit and loss.
How underwriters understand and assess affordability and security value also becomes a moveable feast. An economy at the mercy of so much uncertainty and so much of it out of both government and the BoE’s control makes forward planning almost impossible.
From the perspective of borrowers, applications still must be processed efficiently. Customer service falling over at a time when customers are already stressed about rates rising week by week is a headache no lender wants. Reputationally, this environment is very tricky to navigate while one simultaneously takes a responsible approach to financial risk.
This year’s report hasn’t got all the answers, but it does shed a lot of light on the challenges and how some lenders are addressing these. Knowing what the problem is is the first step toward solving it. M I
