By using personality data, lenders could begin to allow first-time buyers to access the best pricing as well as those with more money to put down.
Clare McCaffery is managing director of Coremetrix
Since the early 2000s outside of the regulatory environment little has changed in how lenders assess and price mortgages. Income, expenditure and credit history metrics remain the foundation of lender decision-making. Pricing is most obviously determined by the deposit available and the resulting loan-to-value ratio.
This traditional risk assessment approach puts younger and new-to-country buyers at a meaningful disadvantage to more established buyers, and results in many being excluded from the housing market entirely.
What if there was a different way to assess risk – something revealing the individual beyond their data?
We use a psychometric quiz to assess an individual’s personality, motivations and likely behaviour and we believe this information can broaden access to financial products of all kinds, including mortgages. Lenders and other financial institutions across international markets agree with us, and we are partnering with a number of them to provide access to credit and other services based on who people are, not what they can prove.
So how could this be applied to mortgages?
Firstly, it could help so-called “thin file” and marginal customers – those with insufficient credit histories, or who just fall short of lenders’ usual standards – who often struggle to access the affordable and high-quality services other customers take for granted. By integrating our approach with the traditional credit scoring techniques one can both improve acceptance rates and even reduce defaults: we firmly believe that the benefits of going beyond the standard assessment procedures are felt by providers and not just consumers.
The second route concerns pricing. The deposit to interest rate ratio is essentially a risk-reduction mechanism. Reduce the risk to the lender and logically the customer should be guaranteed better rates. The issue is that the focus on deposit doesn’t take account of the individual. It’s entirely possible that a conscientious customer with a 5% or lower deposit, eager to get on the housing ladder represents a much lower risk to the lender than a less responsible borrower with a 30% deposit.
By using personality data, lenders could begin to allow first-time buyers to access the best pricing as well as those with more money to put down.
With a regulatory environment that is unlikely to innovate away from traditional metrics for mortgage assessment any time soon, a new layer of data, based on personality and not history, could help forward-thinking lenders capture more customers, and provide differentiated rates in a market dominated by how much deposit a borrower has.
Click here for more information on Coremetrix.
