Mortgage – How the mortgage process has paid only lip service to digitalisation
In recent decades, digitalisation has redefined many industries, from the retail sector, where consumers can get groceries to their door at the click of a few buttons, to the retail finance sector where personal loans can be arranged on a mobile device in a matter of minutes.
When it comes to the mortgage market however, change has been much slower.
With homebuyers rushing to beat the stamp duty holiday deadline, and taking advantage of low interest rates, mortgage approvals are at their highest level in over a decade.
The effect of the pandemic has also been a factor contributing to people clambering for properties for a range of reasons including lost jobs and reduced income whilst others will have been able to pay off debt due to reduced spending.
Once consumers have found their dream home, they have access to a seemingly limitless choice of mortgage products. However, when it comes to the actual process involved in securing their chosen mortgage product, they will find a stressful and laborious process awaits them.
Mortgages for the masses
The modern mortgage, as we know it, was born in 1938 when US Congress created the Federal National Mortgage Association (FNMA), better known as Fannie Mae, in response to a national housing crisis.
The FNMA introduced a new type of mortgage providing funding for housing. Prior to this, cash had to be paid for an entire home, or people faced a large down payment and a short-term loan that would end with a huge balloon payment.
In the UK, since 1982, when the mortgage market was substantially deregulated, we’ve seen many examples of product innovation as lenders strive to attract borrowers. From fixed rates to trackers and discount mortgages, we’ve seen providers design products to appeal to all customer types.
In recent years, lenders have launched fixed rates of up to 10 years to appeal to more cautious borrowers keen to protect themselves against future payment increases. This month new start Perenna revealed plans to launch a 30-year fixed rate mortgage, catering for the most risk averse customers.
Mortgage process has failed to keep up
However, despite the advancements in the types of mortgages on offer, the actual mortgage process has failed to keep up with the pace of change. Comparison sites and online application forms have made it easy for customers to select a mortgage that works for them and quickly get a mortgage in principle.
These developments have done a sterling job of digitising part of the process and show that the technology is available – indeed, most lenders will have a team of talented developers and process improvement experts at their fingertips.
Despite this, although there are digital solutions available for specific challenges within the process, there is no end-to-end solution. Many lenders and brokers are still relying on slow, bureaucratic and outdated systems.
The adoption of technology for the process as a whole has not kept pace with the demand in the mortgage industry and as a result, profits have been squeezed due to inefficient operations. In a huge and well-established market (at the end of 2020, the outstanding value of residential mortgage loans was £1,527.3 billion) change is well overdue.
A laborious process
For the consumer navigating a mortgage application, the process is cumbersome and antiquated and involves the constant duplication of information. There’s often a lack of visibility on the progress of the application, and errors can occur due to the need to input so much information.
For most people, the mortgage process is still approached with a sense of dread – they expect a long and drawn out, archaic process involving multiple steps, duplication of information and paper procedures and that is exactly what they get. In 2021, this is simply not good enough.
It is clear the current process is failing to meet the needs of today’s consumer, who are used to instant decisions and paperless processes (especially the tech savvy 28+ age group most likely to apply for a mortgage).
A fully digitalised mortgage process has multiple benefits; a reduction in operational costs, a reduction in the need for repetitive data entry by the broker, a reduction in error rates and an increase in customer satisfaction and trust. This in turn leads to increased customer loyalty to the lender and therefore increased profitability.
The good news is that change is on the horizon, platforms are now available that have been built from the ground up, allowing for a more efficient mortgage journey and putting the industry firmly on the path towards digital transformation.
Stuart Anderson is chief commercial officer at business processing and software firm Target, which recently launched The Mortgage Hub, a fully digitalised mortgage platform which aims to completely transform the mortgage application process