Technology, all Mortgage Strategy readers will agree, is fundamentally reshaping the business world — and our sector is not immune to this change. The new technologies emerging are based on a combination of open banking, big data and machine learning and will, in the medium-term, turn how mortgages are secured firmly on its head.
It’s not unreasonable to say that our industry is in a transitional phase that will redefine the way consumers borrow, brokers advise and lenders lend. While some commentators will paint this as a frightening picture, once you drill down a bit deeper and see the detail — and opportunities — there’s nothing to be frightened about at all.
Open banking will be a key driver of the change to come. The way information will be effortlessly and continuously shared between relevant financial services providers (subject to consumers’ approval) will make the process of applying for a mortgage in its current form redundant.
Intermediaries shouldn’t panic, though. Through open banking platforms, they will be able to access and monitor people’s ever-changing financial ecosystems, e.g. income, outgoings, mortgage balance, credit score, house price, LTV bands and countless other data points — and they’ll be empowered to advise, more regularly than ever before, on the back of that intelligence.
Through the same open banking platforms, lenders will have access to a similar wealth of knowledge for each individual borrower and be able to process and understand that knowledge via big data and machine learning technologies.
And it’s here that everything really does change. In the customer-centric mortgage world of the future, it’s lenders who will be bidding for the business of borrowers, empowered by their advisers’ knowledge and guidance, rather than the other way around. In time, the entire lending model will be recast.
Lenders will have every reason to switch to this model, too. Armed with data that’s highly granular, and received in a faster, more secure and crucially more cost-effective manner, they will be able to identify and target the exact type of borrowers they want — and therefore optimise and de-risk their loan books in a way that was previously impossible. No need to wait for the right borrower demographic, just identify and bid for its business. Continually.
Such a bidding process will have clear and immediate benefits for borrowers, too — not just financially as the bidding process keeps rates sharp but in terms of the simple time saving involved. Crucially, this will be a world in which the current trend of dis-intermediation will not be accelerated, as some would have you believe, but reversed.
The fact that homeowners will be continuously being bid for by ‘book-optimising’ lenders will not remove the need for brokers but embed them even deeper in their clients’ everyday financial lives. They’ll be less ‘transactional’ broker than adviser, ‘always-there’ to guide clients when they are presented with new potential remortgages as their circumstances change and lenders bid afresh.
Whatever some claim, we are still many, many years off full automation. For now, forward-thinking lenders and brokers, specifically those not intimidated by what they don’t yet know, have a lot to be excited about.
Bob Hunt is chief executive of Paradigm Mortgage Services and non-executive director of Dashly