By Jerry Mulle, Ohpen’s UK MD,
2022 has been a rough and unpredictable year in the lending space. Interest rates have shot up countless times and are projected to keep rising. Meanwhile, key rules, such as the affordability test, have been scrapped. However, such pressured markets do inevitably lead to transformation and adaptation for the players within them – crucial times where it simply becomes sink or swim.
In light of this, the key differentiating factor that we are observing between successful and unsuccessful lenders is advanced flexibility. The ability to upgrade technology fast through the gradual implementation of cloud operating systems has been absolutely crucial in being able to achieve this. In particular, there are three key areas in which increased flexibility can assist lenders in addressing the volatility of the current market.
Responding to repricing
As we’ve just set out, a multitude of factors are materialising in the form of jumping interest rates. In the lending world, when it comes to the subsequent repricing, it scarcely gets more turbulent than this. But a lack of flexibility makes it worse, and ultimately, a lagging and clunky approach to coping with the quick repricing required can cause further headaches.
These operational issues and slow processes are caused by sticking to legacy systems and fundamentally makes it more challenging for lenders to offer rates to brokers, and their customers, that are reflective of a fast-changing market.
However, institutions that employ cloud-native technologies have the power to react to market changes as they occur, rather than days or weeks later. And days and weeks matter in this climate. When utilising agile, cloud-based systems, it means that lenders aren’t slowed down by the withdrawing and repricing process, but can change promptly with the times, offering products and rates that more accurately correlate to the market.
Taking on affordability
And interest rates aren’t the only thing that is changing. So are more entrenched processes, such as the affordability test, as mentioned. With more onus now placed on the lender to assess the affordability of potential borrowers, it becomes what could seem like yet another task to add to a long list. This means implementing and sustaining a model that works best for them in order to assess affordability, something that is potentially harder than ever when we consider the changing world of work and incomes, and the current cost-of-living crisis.
Operating in an incumbent legacy-laden institution with systems that were designed decades ago makes assessing affordability in a contemporary way nearly impossible. It’s now vital for lenders to ensure that their data collection and analysis capabilities are robust enough to assess potential future customers, but also so that these processes can form the basis of a reliable assessment model that can be used time and time again. Again, this is another area whereby only cloud-based technology can provide the technical ability to data capture and analyse, and then ultimately develop a reusable model.
Upping the pace of innovation
Going beyond the specific issues of repricing and affordability testing, the market is forcing lenders to adapt more broadly. For example, a prolonged heatwave has shone a harsher light on the climate crisis, and businesses and consumers alike are looking at how they can more seriously address the damage already made to the planet. The mortgage space is no different, with lenders developing ‘green mortgages’, for example. In fact, research from Leeds Building Society shows that 93% of brokers expect demand for green mortgages to grow.
However, implementing new products like these can be difficult to achieve when operating on legacy technology and building new offerings on age-old systems is messy, disruptive and hinders fast-paced innovation. As such, lenders need to take advantage of the benefits offered by transitioning to cloud operating systems. Migrating back-end operations to the cloud grants these entities the ability to scale and evolve their offerings throughout every step of the cycle, from servicing to origination, and everything in between.
All in all, lenders find themselves at different stages with their current tech stacks, but this is no reason to hold back. A complete technology overhaul isn’t required, not least is it disruptive, but it’s costly to business. Instead, cloud platforms allow for incremental transformation, ensuring that daily operations are not disrupted, but that they can innovate and afford themselves the flexibility in many different areas to meet current challenges, and those incoming.