Will digital mortgage applications provide a competitive edge to lenders?
In the context of the Bank of England base rate cut in August of this year, our analysis of public site promotions as part of Mapa’s quarterly mortgages review has demonstrated a shifting focus away from the price-based promotions that have dominated the past couple of years, in which rates have fallen to record lows.
Among rock bottom prices and increasing competition, the mainstream lenders have instead begun to focus public site promotions around ‘softer’ customer benefits and value-adding services. This trend has been confirmed by director of London-based Mortgage Concepts Associates, Mike Richards, who believes there is ‘scope to compete on service rather than price in the current market’. Santander announced recently that it will focus on delivering enhanced customer service to compete in what it called the ‘highly competitive’ mortgage market.
Despite this fall in rates, a recent review commissioned by Labour reported a decline in UK home ownership by over seven percentage points between 2003 and 2014-15. The review identified the decline in relative wages and barriers to borrowing as the central factors behind the fall in ownership. Unsurprisingly, the decline among those aged between 25 and 34 over the same period has been even more pronounced at more than 20 percentage points. According to the report, more stringent rules around affordability and the availability of credit, as well as rising house prices coupled with a sharper fall in the wages earned by young people relative to other groups, are conspiring to exclude younger people from the housing market.
Without targeted action to address these barriers, the situation is likely to worsen as rising swap rates – which lenders use to guide the pricing of their fixed rate mortgages – are predicted to soon signal the end of the record low mortgage rates in the UK. HSBC this month withdrew its cheapest deal – the 0.99% two-year fixed rate that has dominated the ‘best-buy’ mortgage rankings since it was launched in June. Brokers have been predicting that other high street lenders will soon follow suit. With prices on the rise, Mapa believes the opportunity for lenders in terms of capturing market share will depend upon their abilities to deliver market-leading mortgage advice and application processes.
Santander, one of the UK’s big 5 lenders, has already made considerable moves towards streamlining the process around home loans by providing preliminary mortgage offers via the mobile banking app. During the mobile application process, customers will be able to scan and email documents verifying their salary and identity to comply with regulatory requirements. Customers can complete the process end-to-end and receive a preliminary offer in less than 30 minutes. Once the preliminary offer has been received, it takes Santander an average of eight days to confirm – compared with an industry average of 12-14 days. However, the lender is confident that this could be cut to as little as four days in future, by automating processes around ID verification and online property valuations.
While we have seen standout digital propositions in the mortgage space from FinTech challengers such as Trussle and Habito – who claims to be ‘bringing the mortgage application process into the 21st century’ – this is the first mobile-first mortgage application journey from one of the big incumbents that addresses the key customer demands of simplicity and convenience. As the automated processes underlying digital product selection and application continue to improve, providers will be able to more accurately pair customers with the most suitable products and make applying as accessible and straightforward as possible.
This will particularly benefit first-time buyers, who are often overwhelmed by the significance of one of the most important financial decisions they will make. Mapa believes that this customer-first approach will help to eliminate the fear element that often surrounds mortgage applications and help to position lenders as partners guiding consumers through the process of choosing and acquiring a home loan.