Digital mortgage solutions: Still not home and dry
While far from delivering a coherent, user-friendly end-to-end journey, digital alternatives are emerging to both complement and challenge branch-based processes around selecting and applying for mortgage products.
Using our unique market insight, we look at the quality of these digital solutions in terms of the delivered experience, and consider how they are likely to change moving forward under the weight of constantly evolving customer expectations.
Take me home
Traditionally billed as the single biggest financial decision people will make in their lifetime, mortgages have been largely sheltered from the digital revolution that continues to transform retail financial services. Perceived as a more complex financial product, much in the same way as pensions and investments, the prevailing belief among providers has been that people will generally rely on face-to-face advice from mortgage experts to guide them along this complicated journey.
While this is still largely true, consumer sentiment is shifting as we become more financially confident. The growing success of digital mortgage brokers, such as Habito and Mortgage Gym, demonstrates the fact that an increasing segment of consumers will happily rely on clever algorithms and chat-based advice to match them to the most suitable product, removing the need for input from an in-branch advisor. The Tinders of the mortgage world, these platforms are interactive and engaging, and introduce consumers to mortgage products that best suit their preferences and individual circumstances. This allows them to self-serve with confidence and addressing a traditional customer pain point in the process.
Green, green grass of home
Having received a product recommendation from an online broker, the next step for any applicant is to request a Decision in Principle (DiP) from the lender. A DiP can be completed online in the applicant’s own time and, while not a lending commitment in itself, offers an instant flavour of how much the applicant might be able to borrow based on individual circumstances. Just like its non-digital counterpart, the decision will remain valid for a set period, and customers with a Decision in Principle can present the certificate to estate agents to show they are a serious buyer. As our Core Products Dashboard shows, the ability to apply for a DiP online is universal across the established UK lenders for first-time buyers, home movers, and customers looking to re-mortgage an existing property. Digitising the mortgage application journey to this point removes a lot of the legwork required from the potential buyer, allowing them to focus on finding their perfect property.
After a customer has used their DiP certificate to have an offer on a property accepted, the next step will be to confirm their mortgage and finalise their application. Only a handful of UK providers allow customers to do this through the digital channel and Mapa analysis of these journeys has shown that the user experience is sub-optimal, leading to higher than normal dropout rates. One key driver of customer dropout at this point is the product selection stage. Customers are generally presented with a long list of available products, and sorting through all the options to find the most suitable mortgage can appear overwhelming. HSBC and Nationwide allow applicants to choose products to compare side-by-side, but is this really enough to understand product iterations and idiosyncrasies?
One of the associated benefits to customers of engaging with a digital mortgage broker at the beginning of the process is the peace of mind from knowing they have been matched to a suitable mortgage by an expert, giving them the confidence to continue the process digitally and eliminating the dropout risk associated with the product selection stage of the post-DiP application. Of course, this is also good news for the lender, who should see a decline in their dropout rates at this stage of the application journey. However, more must be done to deliver a better experience in-channel and to encourage completion; the number of clicks and screens must be streamlined, customer expectations should be managed clearly throughout and meaningful in-channel help & support should be readily accessible.
While incremental changes are already starting to enhance the online experience at this stage, such as allowing applicants to accept the terms of the Mortgage Declaration digitally rather than being required to sign and return a hard copy, significant delays are still caused by the absence of a digital upload option for other supporting documents, such as proof of ID and income. All of this means that the industry average in terms of time taken by providers to process a mortgage application and provide a decision is roughly two weeks, a not insignificant period of time at what is a crucial stage of the house-buying process.
However, forward-thinking providers are beginning to explore ways of reducing the time taken to return a decision. Santander has rolled out a solution allowing applicants to scan and email documents verifying their salary and identity, cutting the period required to return a decision to eight days. By further automating the verification processes around passport verification and property valuation, the lender expects to be able to reduce this to as little as four days in the future. So, end-to-end online mortgage applications from product selection through to final decision can be achieved in a timely fashion.
As providers continue to invest in rolling out ever-more sophisticated digital solutions to address obvious pain points, Mapa expects the delivered experience to improve and the time required to return a decision to reduce dramatically.
The pace with which this is delivered should spike significantly in the post-PSD2 environment of open-banking, where those providers who can access an aggregated view of customer finances are in the driving seat in terms of cross-selling, up-selling, etc. In short, with everything to play for in the mortgages space, those who win will be those who innovate.