Computers are great when it comes to logic but are not so good when intuition is required.
Simon Read is managing director of lending at Magellan Homeloans
Some of the most significant developments that have taken place in the mortgage market are the result of advances in computer technology.
Everything from credit scoring to offset mortgages have been made possible because of the power of computing. If you think about it, there’s very little that hasn’t been enhanced by technology: products, processing, underwriting, marketing, client communications…..the list goes on. As much as I disagree with ‘the computer says no’ approach –no one can be blind to the fact that life is generally a better place because of technology.
Financial services is an ideal market for the application of new technology. We don’t deal with physical products; our business is all about processing and managing data. It’s what computers do best. Everything from providing product information online to application submission, underwriting, dealing with third parties such as conveyancers and valuers, is enhanced by the use of technology.
And the end result is a better service for our customers. It doesn’t matter if lenders prefer to use credit scoring or manual underwriting, technology helps to give borrowers access to information, faster turnaround times, regular progress updates and quicker completions. It’s a win/win for all concerned.
The big question is where will technology take the mortgage market in the future?
The answer appears to be down a route which involves more sophisticated automation. ‘Robo-advice’ is the hot topic at the moment and advances made in the world of investments is starting to make its presence felt in the mortgage market.
Can computer technology really be used to provide borrowers with advice? Yes, of course it can. Matching a product to a client is all about decision trees and computers handle that sort of process extremely well. Let’s face it, if you can buy investments and insurance with the help of a computer, then you can certainly buy a mortgage in the same way.
However, I have two major concerns about the onward march of technology. The first, and by far the most important, is ensuring that consumers are adequately protected, especially vulnerable borrowers. Borrowing money is not just about needs it’s also about circumstances and a large number of borrowers require the skills of an experienced mortgage adviser and lender to ensure they end-up with a prudent and appropriate mortgage solution, don’t overcommit themselves and don’t waste time applying for mortgages for which they’ll never be approved.
Our underwriters know from experience that it’s only when they link together apparently unconnected pieces of an applicant’s background information, that they form a comprehensive picture of what’s actually going on. I find it difficult to understand how a computer can make a similar judgement call. Computers are great when it comes to logic but are not so good when intuition is required.
My second concern is whether most consumers are ready and willing to accept robo-advice. Just because it’s possible doesn’t mean it’s desirable and I do wonder if the overwhelming majority of borrowers will continue to opt for the reassurance of dealing with a person rather than a computer.
Mortgages are, for most people, the highest value transaction they will ever undertake. Mortgages are also infrequent transactions and, unlike annual car or property insurance renewals, the nature of a mortgage transaction can change dramatically each time it’s undertaken. When borrowers return to the mortgage market after a gap of a few years, not only have their circumstances probably changed, but so have the products on offer. It’s easy to understand why approximately 70% of borrowers opt for the advice of a mortgage intermediary.
My instincts tell me that robo-advice will make some inroads into straightforward transactions such as remortgages, but I don’t believe intermediaries need fear being replaced by a computer any time soon. Quite the opposite; the developments taking place in the world of robo-advice may well help intermediaries by doing some of the more mundane leg-work, leaving them free to focus on what they do best; provide advice.
Let’s use technology to the full, but not lose sight of what’s really important: the customer.
