FOR most people, buying a house will be the biggest purchase they will ever make – but it can also be one of the most stressful transactions.
From providing evidence of income through to a lack of information surrounding timescales, consumers often find the process hard to understand.
Dean Butler, managing director of retail direct at Standard Life, recently remortgaged and thinks that the current market is opaque for borrowers.
“From the moment you receive a letter saying your mortgage deal is ending – and your interest rate is going from maybe sub-1% to a variable rate above 8% – straightaway that’s putting the customer in the headlights of fear and worry,” he explained.
“Then there are the fees – I was seeing fees quoted from £300 to £3,000, with no transparency around what you’re getting in return for those fees.
“If you get a mortgage advisor then they will charge in different ways – some will take their cut from the mortgage fee but others will charge £800 upfront to even have a discussion with you.”
Mr Butler added: “I think you could demystify this whole experience.
“Why can’t a mortgage provider have a great online guidance experience that knows who the customer is and holds their hand through a series of questions and leads them to a good recommendation?
“And then, when a customer’s fixed-rate deal ends after two or five years, why not ensure that they’re always put onto the best possible mortgage available from that business?”
The Financial Conduct Authority (FCA) introduced its Consumer Duty rules last summer, [2023] requiring financial services firms to give customers more support and communicate more clearly.
Technology could hold the key to helping lenders meet the FCA’s expectations.
Behind the scenes, most long-established mortgage lenders are using computer systems and processes that were designed decades ago, while newer entrants to the markets will have been able to design their own systems.
“More established lenders may face different technological challenges compared to newer lenders, who are likely to come into the market without the challenges legacy systems can provide,” explained John Baguley, mortgage policy principal at trade body UK Finance, which represents banks and other financial institutions.
Using outdated systems can have an impact not only on processing mortgage applications but also a knock-on effect on the availability of products, with some lenders’ operations teams struggling to handle high demand for popular products.
“One of the perennial problems for mortgage lenders is experiencing peak demand for products but then struggling within their operations departments,” said Stephen Brown, head of intermediaries at Scottish Building Society.
“Often it will be operational demand that leads to lenders putting up their rates, rather than increasing costs through Sterling Over Night Indexed Average (Sonia) swaps.
“One of the things that we still do really poorly as an industry is verifying customers’ identities.
“Sometimes a customer will have to verify their identification (ID) four times during the process – if you’re buying a new-build then you potentially could have to verify your ID with the builder, the mortgage broker, the mortgage lender, and then the solicitor.
“That’s a lot of work for a customer to do to repeatedly produce their passport and a utility bill, or go through the electronic ID process and provide their documentation.”
As well as validating a customer’s ID, lenders also need to handle a whole range of documents, often manually.
“If you jumped into a time machine and went back to the early noughties then brokers would still be supplying the same documents to lenders that they’re doing today,” Mr Brown pointed out.
“You’re probably going to have to give your last three months’ wage slips, last three months’ bank statements, your ID, your address, and – if you’re self-employed – you’re going to have to come up with two or three years of tax returns.
“That’s a lot of documentation for customers to supply and then, in many instances, the lender will have to manually validate those documents to make sure they align with the application that’s been submitted.
“That creates the bottleneck in the process.
“You could have a fantastic mortgage rate for homebuyers but if you reach peak demand and you’re taking in 10 per cent or 20 per cent more applications each day than you can handle then what will pull you out of the market is that operational flow.”
Cloud-computing platforms offer the opportunity for many lenders to speed up their reactions to changes in interest rates.
“On a cloud platform, you can make changes within minutes, but on a legacy platform it could take days or weeks, or in some cases months,” pointed out Nick Lawler, market director for Europe, the Middle East, and Africa (EMEA) at Mambu, a software-as-a-service (Saas) cloud banking platform.
Download Mambu’s recently published report ‘Revolutionise mortgage lending with cloud-based tools: a guide to efficient loan management’ and discover how moving core lending technology into the cloud can open the doors to a resource-lite way to develop, launch and run exciting new mortgage solutions. Read more about what is being done to Transform the UK Mortgage Market in our dedicated Mortgages Hub – HERE
Nick Lawler is a senior business leader with 15+ years of experience in commercial and business development. His expertise ranges across banking, finance, and data solutions. Nick has assembled and managed top-tier sales teams at the director level to deliver high-quality customer experiences and growth opportunities. Since joining Mambu as the Market Sales Director for UK & Ireland, Nick has helped excel in the business by identifying and leveraging strategic partners for cloud core banking solutions
