Mortgages for millennials
Banks should overhaul the mortgage process for a digital age before disruptors get there first, says Peter Veash, CEO of The BIO Agency
It appears that the housing market is defying any fears of a crash after the Brexit vote as gross mortgage lending hits its highest August level since 2007.
The Council of Mortgage Lenders said its members had advanced a total of £22.5billion during the month, 7% higher than July’s figure and up 15% year on year.
This announcement is obviously good news for the average home buyer, while the Bank of England’s decision to cut interest rates to a new low of 0.25% in early August will have played its part, as more people enquire about lower mortgage rates from their high-street banks.
But herein lies a problem. In a world where technology has disrupted everything from how we book a taxi to where we stay when we’re on holiday, the process of applying for a mortgage still hasn’t changed.
Banks still expect digital savvy consumers, who rely heavily on comparison websites and peer-to-peer recommendations, to search by mortgage rate and then make an in-branch appointment and endure a time-heavy meeting in which their spending habits are scrutinised and outdated profile information is most likely used to assess their ability to repay a loan. This experience could hardly be described as ‘effortless’, and in the worst case scenario might even leave such a bad taste in consumers’ mouths that they go running elsewhere.
Yes, some disruptor banking brands including digital-only, technology-led banks with trendy names like Atom and Starling have spiced up the current account market. But for the most part, mortgages have refused to move with the digital times.
Those more nimble challenger banks have used their technology advantage to make the customer experience more appealing, but it seems that the whole mortgage experience is such a complex trail of paper and credit scores that they haven’t wanted to touch it at all.
This provides more traditional banks with an opportunity. The advantage of the high-street bank is that they often know their local customer base and therefore enjoy a relationship with them built on long-established trust and loyalty. If they decided to invest in making the mortgage application process a cleaner, smoother more customer focused digital experience, their loyal customer-base would be far more likely to forgive any initial upheaval for a longer-term high-street banking solution.
It wouldn’t even be that difficult – online mortgage advisor Trussle teamed up with Zoopla earlier this year to launch a digital service that transforms the finding and financing of a home into one seamless consumer journey.
The online experience uses real profiles and abilities to repay and if mortgage searchers qualify, they receive a ‘Mortgage in Principle’ in less than five minutes and go on to secure that mortgage within 24-hours.
This affordability data is then also used to drive future searches, presenting new buyers with other affordable properties in desirable postcodes.
The new service is made possible by Trussle’s proprietary technology – an algorithm that compares more than 90 lenders in real-time to give potential homebuyers the best value mortgage on the open market, faster than any other broker, bank or building society.
There’s little doubt this is the beginnings of disruption within the mortgage sector. Banks need to realise this and act faster than the taxi trade when somebody mentioned, ‘there’s this new app called Uber’.
So what can banks do to prepare? Well, first they need to talk to their customers to discover the most common grievances with the mortgage application process.
The tracking of applications seems to always be a big pain point for consumers, with over half of calls to call centres being around, ‘whats the status of my mortgage application?’
Digital technology could easily provide an online tracker and visibility of applications to ease congestion at call centres and put the customer more in control.
Banks could then start to look at their products and match them with customers’ life stages.
Added value services like assisting with the moving process and generally making customers lives easier is an area banks should already be moving into.
But most of all, banks need to sort out the basics and get their houses in order. Astoundingly, many banks still don’t allow you to make changes to your mortgage account online from simple transactions such as payment holidays or over payments – which seems counter intuitive, when you consider that many other industries have handed complete control over to the consumer and allow them to tailor every facet of the customer experience via a convenient and intuitive medium. Basic functions like these should be in place so customers can do them digitally, at any time of the day or night, without having to go into a branch or phone-up.
Putting digital, helpfulness and simplicity at the heart of a process re-haul could be a pivotal moment for bigger banks working in the now very healthy mortgage market. It will certainly put them on a more secure footing when the inevitable disruption from challenger banking brands finally comes.
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