Technology review

Why the answer is never 42

Mark Blackwell

COO, CoreLogic

According to Douglas Adams’s 1979 science fiction novel The Hitchhiker’s Guide to the Galaxy, the answer to life, the universe, and everything is 42. How did they work it out? The supercomputer told them.

Adams wrote his book more than 40 years ago, long before personal computers were mainstream – but not before algorithms.

How is this related to the housing market in 2022? Adams was no stranger to the idea that what computers spit out in their algorithms depends entirely on what is put in. Putting in data describing life, the universe, and everything is, by virtue of the volume of data, meaningless.

Considering the concepts of big data and analytics have been around since the mid 2000s, we’ve still not mastered how to use them effectively all the time. Data isn’t helpful unless you know what to do with it. Key to getting it right is not to pile in more data sets; it’s to learn how to interpret multiple sources to support human judgement.

Ultimately, lenders are running a business. Their business is to lend money secured on homes that their customers want to buy. Data can be used to inform the lender how much is safe to lend against that home or to that person, but it should never be relied upon without scrutiny.

When it comes to assessing risk – which, ultimately, is what algorithms aim to aid – judgement must be employed, because almost all data is imperfect. Factors that affect the value of a property are numerous.

Is the property leasehold? What are the ground-rent conditions? What is its proximity to HS2? Is the imminent construction of a four-lane motorway planned in view of the property? Is it located on a flood plain? Is it located on what might become a flood plain given climate change? Is it too close to a coast at risk of erosion?

There are scores of data on this type of thing, and it is useful up to a point. Of course, no lender wants to approve a mortgage on a property built on top of a nuclear waste disposal site. But data can also swing risk assessment far too far away from what is sensible.

Take London and the South East of England. The soil on which all homes and properties are built has its foundations in London clay. Clay is notoriously vulnerable to shrinkage, caused by variation in moisture content. Cutting down a tree whose roots retract can tip an entire terrace into a twist. Climate change creating hotter, dryer spells followed by torrential rain plays havoc with London clay. Subsidence in the capital is more common than anywhere else in the UK.

So, higher risk. And as our summers get hotter and our winters wetter, that risk is rising still further. The geological data says don’t lend. But it’s London. Jobs are there. Theatres are there. Art galleries, people, the international rich and elite are there. England’s entire transport and energy infrastructure is designed to connect to London.

This is a perfect example of why it’s so important to involve judgement in decision-making. Data is vital to inform good judgement, but it cannot, at the moment at least, be relied upon in isolation.

Data is by its nature backwards-looking as well. The past is often a very good guide to the future – but not always. I’m not suggesting that people can get out their crystal balls and accurately predict the next economic crash, either, but we can recognise that change is coming and from where before it shows up in the data.

Fifteen years ago in the UK, affordability data wasn’t considered – only income ratios and self-declared income. Automated valuation models used in 2006 and 2007, when house prices had been rising consistently since the mid 1990s, didn’t have the data to anticipate the crash that followed Northern Rock’s collapse and the effect that uncurbed sub-prime lending would have on property values around the world.

Anyone could see the writing on the wall by the autumn of 2007. Persistent insistence that the US housing market sneezing really didn’t mean the UK would catch a cold was a marketing exercise born of desperation as credit markets closed.

There were people who foresaw the economic catastrophe that no job, no income, no assets loans would stave off far, far earlier.

This is why it is so important that markets remember to evolve their thinking. When it comes down to it, markets consist of people making decisions. Algorithms account for an increasingly large proportion of those decisions, particularly in stock markets. But when it comes to risk decisions in niche areas, when the law of averages does not apply, data can take you only so far.

Its value is not in its presence. It is in the prescience it can afford if given to the right person to interpret. M I

Time is (increasingly) of the essence

Neal Jannels

MD, One Mortgage System (OMS)

There has been a huge amount of coverage recently regarding the possible impact of increasing mortgage rates on potential borrowers and existing homeowners, and rightly so. Although that’s certainly not to say that all of this coverage has been balanced. Some of the figures being bandied about when nobody was, or is, certain of the exact impact on the mortgage and housing markets over the immediate, short, or medium term have been a little frustrating, to say the least.

This is not a time for hyperbole or scaremongering, but we have seen plenty of both in the national media. However, and very tellingly, we are seeing far less from those business operators at the coalface who are, thankfully, keeping a much clearer head. A number of broker voices have also emerged in the national press and on social media in the wake of the market turmoil, and the ones I saw, at least, offered a far more considered opinion. Such voices demonstrate the professionalism and expertise that exemplify our industry, and I salute all of those who have stuck their heads above the parapet to help reassure borrowers in what are, quite frankly, scary times for many.

And this all comes at a time when brokers are working harder than ever to support a range of clients in the wake of some extreme lending conditions. Which leads to the question, who is supporting the brokers?

I would hope that they have a strong support network at home to rely on – and from a business perspective, when time is so precious, I would hope that the investments made in technology will help them to identify those clients in most need, not to mention helping them from an efficiency perspective to free up more time to be on-hand to offer this advice.

Time is especially valuable for those potential borrowers and homeowners who are looking to secure their first or next mortgage deal with immediate effect. All of which is placing even greater pressure on advisers, and on the power of technology, to alleviate concerns.

However, it’s not just securing a mortgage or remortgage that is generating frustration across the housing and mortgage markets. Research from Smoove’s Home Movers Report outlined that the average time taken to buy a home and have the keys in hand is more than five months.

Within the last six months, the average time taken to complete the home-purchasing process has stood at 153 days. By contrast, in 2019 it took 124 days – meaning there has been an increase of 29 days, or 23 per cent. Smoove said the increase is most likely a result of the post-lockdown boom, as changing consumer lifestyles and demand outweigh supply, combined with greater capacity constraints for solicitors, and local authority searches taking longer to complete, likely due to technology failures or a large backlog.

The home-moving process also continues to be a very protracted, fragmented, and analogue experience, with many checks and documents still needing to be in physical form, rather than being signed or reviewed digitally. As a result, nine in 10 homeowners found the process stressful. Among the top stressors were the sheer length of time it took to complete the process (40 per cent), the lack of certainty (34 per cent), and waiting for exchange and completion dates to be finalised (33 per cent).

The research shows that the length of time spent filling out forms, such as property title deeds, EPCs, local authority searches, and transaction and conveyancing forms, is a particular aggravation for homeowners. The documents that take the longest to wait for and complete include mortgage applications/agreement in principle (22 per cent), ID checks (18 per cent), and local authority property searches (16 per cent).

According to Conveyancing Data Services (CDS), the average length of time to receive personal searches from local councils across England and Wales was between nine and 11 days in August. However, while the majority of councils are processing requests within a reasonable timeframe, some councils are taking longer on search times, such as Middlesbrough (35 to 40 working days) and Havering (65 to 70 working days).

In such a turbulent lending environment, an even greater number of obstacles is being placed in front of all components within the homebuying journey, and with digitalisation and automation playing such an integral role in this process, it’s important to maintain impetus in this area where possible.

From a client perspective, advisers need to use technology (like OMS) to identify concerns, provide tailored advice, deliver appropriate solutions, and communicate quickly and effectively. This is easier said than done under such intense pressure, but, as always, the intermediary community can be relied upon to rise to the challenge and demonstrate their ongoing value. M I