It is a cliche now, but also a truism, that the pandemic drove innovation through necessity, and as someone that has been around the mortgage technology space for over 15 years now it’s been heartening to see the pace of change accelerate.
As the dust has started to settle in the post-pandemic world there are also a number of wider technology trends impacting the mortgage market.
We are now in an era where a number of key new technologies are reaching a level of maturity where real world application is becoming the norm (which we will detail below). And finally, with London officially the fintech capital of the world (by investment levels), increased competition in the market is driving innovation at all stages of the home buying journey, from initial engagement with a broker all the way through to completion.
So as we look ahead to 2022 we believe there are ten key mortgage trends that will continue to drive change in the mortgage sector next year.
1) Increased use of automated data sources
The usage of more automated data sources will continue to grow and will enable more automated decisioning, less data entry (from customers and brokers) and higher quality and depth of data. This will include increased use of automation valuation / automated rental to support more fully automated decisions at certain LTVs, leveraging governmental data (from Companies House, Land Registry, etc) as well as a whole world of physical, geospatial, environmental and climate-related data from the likes of WhenFresh.
2) Digital ID will start to gain traction
Let’s start at the beginning and explain what Digital Identity (Digital ID) actually is. Put simply, a Digital ID system provides a simple and secure way of proving identities online, which creates the opportunity to improve efficiency and customer experience while at the same time reducing fraud risk.
In practice, digital identity is an extension of current physical ID documents such as driver’s licences, passports and bank cards. A number of companies offer biometric and document verification as services that can (relatively) easily be integrated into your company’s digital journeys.
The use cases for the mortgage industry are clear however, a lack of a defined standard as to what constitutes a satisfactory digital ID has led to a degree of reticence by some to adopt. In my view, with the Land Registry seeking to address this issue and agree on a set of Digital ID standards that can be utilised during the home buying process, this will lead the way to more widespread adoption in 2022.
3) Usage of Open Banking will finally take off
As evidenced in October’s Open Banking Impact Report, the availability of services continues to expand, although the pace of growth appears to have slowed.
Open Banking now has comprehensive coverage in three outcome areas: decision-making, payments and borrowing. Despite a slight slowing, adoption has continued to grow with 7.5 – 8.5% of digitally-enabled consumers now estimated to be active users of at least one open banking service.
In the mortgage sector, it’s obvious that open banking will see greater adoption as part of mortgage affordability checks. I also foresee greater use by brokers to pre-qualify customers even before they apply to lenders, as affordability will continue to be the main hurdle for many, especially those seeking to buy for the first time.
4) Conversational digital experiences will grow
With hybrid working becoming the norm, businesses are increasingly looking at how they interact with customers when and where they want and it’s clear that chat interfaces, whether they are with humans or are automated chatbots can compliment existing customer telephone contact centres and enable a higher volume of queries to be processed.
Lenders like Accord and Halifax, as well as the likes of Leeds Building Society are already showing the value of webchat in the broker channel. I can only see more lenders using this technology, although I think automated versions will be much further down the line and so human powered chat functions will be the preferred option for most if not all.
However, for brokers, pre-qualifying customers can easily be done using automated chatbots and with more and more customers wanting to interact out of hours, this can be an excellent way of capturing quality leads and converting visitors to your site.
5) Broker Usage of lender API integrations will increase
Lender API integrations with broker platforms offer the potential to make re-keying of data into lender portals a thing of the past. But as James Tucker, chief executive of Twenty7Tec, admitted during our recent MagiClick Tech Talks interview, bringing lenders onboard to link with their Apply platform took longer than they originally envisaged. Without a critical mass of lenders plugged in, many brokers were hesitant to embrace this new way of working, as the benefit to them wasn’t there yet. However over the past 12 months we’ve seen real progress in the number of lenders now integrated and I predict that 2022 will be the year tha adoption finally takes off.
6) The conveyancing world will be shaken up
The chaos surrounding the end of the stamp duty holiday was inevitable but could have been avoided, if as an industry we hadn’t become almost blind to the inefficiencies within the system around solicitors, conveyancing and the compilation of the legal documents to enable completion.
Unfortunately, solicitors and conveyancing firms took a lot of flak and many of their employees were subjected to unforgivable abuse, which again was avoidable if such a blunt tool like a stamp duty holiday hadn’t been used in the first place. However, what it has highlighted once and for all, is the need for change to not only improve the experience of the customer, but also help all those involved, including brokers, lenders and solicitors.
The conveyancing world has often been referred to as a cottage industry and what is refreshing is that we are seeing people like Jesper With-Fogstrup, chief executive of ULS technology, join the industry with an ambition to improve the experience for all involved and to take learnings from other sectors – I expect to see the initial ripples of change in 2022.
7) Automation will grow within the specialist sector
Automated decisioning has been the sole preserve of mainstream lending markets and a lot of experience and know-how has been built over the last few years.
This experience and know-how is now being applied to more specialist markets such as complex Buy to Let, non-standard borrowers i.e. those with adverse credit or who are self-employed/contractors, especially as more and more data can be obtained than ever before to assess such applications. A good example of this is Masthaven Bank’s portal, which we developed with them in 2021.
As indicated in recent research by Smart Money People, the satisfaction of brokers about mortgage lenders regarding the time they are taking to process applications through to offer has increased for a second consecutive time to sit at 74.2%. Specialist lenders do not rate so highly for speed to process applications through to offer in the eyes of brokers, at 62.5%, which is an increase of just 0.3% from H1 2021, and has not yet returned to the peak of 63.9% at the end of 2018. It’s clear that the size of the prize is significant for those lenders who are early adopters in the specialist sector.
8) Blockchain will gain a foothold
Another technology that has failed to live up to previous hype is blockchain, however we are now starting to see some real commercial applications, including in the mortgage sector. For example, at the end of last year Coadjute announced they were launching a new cryptocurrency specifically designed for mortgage transactions. While it is still relatively early days for adoption I predict we’ll continue to see real commercial applications of the technology launch in 2022.
9) There will be increased competition from fintechs and neobanks
The acquisition of Fleet Mortgages by Starling Bank is surely just the beginning and whether others follow them to acquire existing mortgage origination businesses or seek to build their own, it’s clear that other financial institutions are eyeing the UK mortgage sector with interest.
Such competition is great for the consumer and despite recent interest rate rises and possibly more on the horizon, competition means that rates are kept as low as possible to protect business volume targets and expectations. The financial penalties are harsh for any lender who does not fill their funding line, so for those in the specialist sector who are reliant on the capital markets for their funding, there is a fine balancing act to play.
We should also expect to see more banks and financial institutions enter the UK market from overseas, as the UK is still an attractive proposition for foreign investment.
Mark Lusted is chief executive of MagiClick
