The beginning portion of the year has seen some lenders trimming rates, potentially igniting sparks of competition in the marketplace. As rates dip lower, the need for differentiation is more vital than ever. Lenders will need to focus on offering a personalised customer experience in order to retain existing customers and entice new ones. From a technology standpoint, the borrower journey is due for an overhaul. Enhancing its transparency, user-friendliness and personalisation is crucial for lenders to distinguish themselves in a marketplace brimming with options.

As we contemplate the journey ahead and the ways in which lenders can achieve this differentiation, four key themes have emerged.

Pricing

The traditional rate sheet is becoming obsolete. As competitors jostle for space, dynamic and intelligent pricing strategies will become indispensable. Personalisation remains the watchword of the year, and I expect that offering rates tailored to the individual circumstances of borrowers will be a game-changer.

At nCino, we’re speaking to a lot of clients who are starting to explore how to be more dynamic and efficient, and what tools or vendors can support them over their existing legacy solutions. Specifically, financial institutions (FIs) will be looking at how can they adjust rates based on an individual’s circumstances and offer a rate unique to them. I predict that this will lead institutions to draw away from mass market pricing to more bespoke models that entice new business.

Proposition

With this more dynamic pricing, offering a flexible product proposition becomes key as well. We’ve already seen a change in product demand last year with product transfers increasing by 11% to £219 billion in 2023, according to UK Finance. However, if a lender can’t differentiate based on rate, there is another avenue to help set them apart.

In a market where price differentiation is increasingly challenging, lenders can gain a competitive edge through innovative product flexibility. For instance, Virgin Money’s ‘Fix and Switch’ Mortgage offers a unique approach with its five-year fixed-rate mortgage that includes a two-year early repayment charge (ERC). This structure allows customers to enjoy the stability of a long-term fixed rate, while retaining the flexibility to adjust to changing market conditions after the initial two years. Similarly, Skipton Building Society has introduced a 100% mortgage designed to appeal specifically to first-time buyers.

When pricing becomes intensely competitive, lenders must explore other opportunities to enhance their proposition’s attractiveness. This might involve reassessing the role of fees within mortgage products, making policy changes or introducing unique fee structures. By incorporating these innovative strategies, lenders can make their offerings more appealing to customers, thereby attracting a larger share of the market. Policy transformation is the last piece of the change agenda that very few lenders have looked at or cracked.

Personalized User Interface and Experience

While service, product and proposition are important, another key component to differentiate your customer experience is via a unique user interface (UI).

Many lenders we speak to are prioritising how to integrate a seamless UI experience into their existing digital channels by taking on their own front-end transformation versus relying on the front-end provided by their existing vendors. As we converse with a lot of our clients around origination transformation, a common ask has been to be able to integrate that into a more personalised front-end UI to better differentiate their mortgage experience in the market.

Outside of the core offerings or prices, this is a way for lenders to put a stamp on the customer experience and make it truly unique to their institution.

Servicing

Modern day origination providers and core banking don’t often cover the full depth and breadth of servicing. Legacy servicing replacement is the third leg of the stool in mortgage transformation, alongside origination and core banking.

This means that lenders embarking on a technology transformation programme must consider their servicing needs at the same time – especially when looking at customer journeys such as rate switches, porting, further advance, and transfer of equity. We’re seeing a greater level of discourse with our clients on how to address their servicing needs; highlighting the increase in focus that this area is generating because affordability issues and cost of living remain a challenge for some customers.

Ending the Year Strong

We know that the overarching theme for the U.K. mortgage industry is differentiation. Leveraging technology is key, as it’s the fabric that weaves together product, proposition and policy innovations. Lenders tied to legacy systems will find their strategic moves constrained and limited by budget, time and their ability to influence in these areas, while those on agile, modern platforms are positioned to lead the pack.

Ultimately, lenders are at a crossroad. The need to differentiate, be it through niche-focused products, competitive pricing or agile policies, will dictate their market position as we move ever closer to 2025. Those capable of pivoting swiftly and smartly, with a keen eye on customer-centric adaptability, will write the success stories of the future. What remains interesting is that when people talk differentiation, very rarely is the existing technology discussed as a factor. Perhaps that is the key trend that will emerge next.

Thomas Chaplin is head of mortgage, EMEA at nCino