This year has seen a dramatic growth in the mortgage market, especially the non-conforming sector. In the last decade it has come from nowhere and now accounts for 10 per cent of the UK’s £290bn mortgage industry. Non-conforming recorded an increase of 9.1 per cent in 2005, compared to 4.1 per cent in 2004. Across the UK it is gathering momentum, with growth outstripping mainstream. The pie is getting bigger and everyone wants a slice of it. But how can a lender successfully acquire a piece of the pie for itself? Our answer is clear: first, you have to understand the market and its synergies, second, you have to equip yourself with the right weapons – technology and service.
Understanding the
non-conforming market
It’s all down to macroeconomics. There is a myriad of reasons why the market is expanding. The number of adults unable to borrow from a mainstream lender stood at nine million in 2005, and this figure is set to increase. Each year there are around 700,000 CCJs made against individuals and companies. Contact with debt advice agencies rose significantly during 2005/06 – National Debtline took 65,535 calls during 2005, an increase of over 43 per cent from 2004. Levels of personal insolvencies rose in the first quarter of 2006, with an increase of 12.9 per cent on the previous quarter and an increase of 73.4 per cent on the same period a year ago. Models of insolvency levels indicate that they are strongly driven by debt-to-income ratios with a time lag of 12-18 months. Given ongoing increases in the debt-to-income ratio over the past year, the number of bankruptcy orders is projected to continue to rise. This is not a shrinking market, and is one that edeus is catering for.
Boosted by the rising number of self-employed people struggling to meet traditional lending requirements, self-certification is growing faster than mainstream mortgages, too. Self-certification now is the largest of the specialist sectors. According to the Office of National Statistics (ONS) 8.8 per cent of the UK’s 29 million strong economically active population is self-employed – that is over two and a half million people. Individuals working for themselves, with no guaranteed or fixed income, are among the first in the queue for non-conforming products, and with the figures showing increasing levels of self-employment, it’s no surprise non-conforming lenders are falling over themselves in the scramble to establish themselves in the sector. Obviously, the growing number of self-employed people has given the non-conforming market a huge boost with almost 30 per cent of all UK mortgage lenders now offering at least one self-certification product.
With the non-conforming market attracting new entrants like ourselves, and renewed interest from investment banks, the sector has been forced to gear up for a period of high competition. Existing lenders are now focusing on expanding their policies to provide non-conforming products to an ever growing pool of consumers. But if they want to have a piece of the pie, they need to provide more to the product: technology and service.
Equipping yourself with the right weapons – technology and service
edeus fights hard in any arena – but technology is our chosen theatre of operations.
Technological developments have reduced timescales, helped retain margins, and brought rapid changes and major efficiencies. It is clear the use of technology will greatly enhance the competitiveness of a lenders’ operation and help create a network of intermediaries. Today, around 60 per cent of new mortgages are being sold through the broker and intermediary channels. By providing intermediary access to a good, broker-friendly website, lenders can generate substantial loyalty from their sales channel and decrease operational costs at the same time.
Also, selecting specialist mortgage products involves a more intricate process to establish the amount of risk each client represents to the lender. Product searches are subject to a more comprehensive set of rules, a wider range of checks and validations have to be made and the process itself can often differ according to the type of product required. So you have to get the technology right. Any mortgage lender should be investing heavily in technology. Those lenders that are able to are already extending their systems to automate the sourcing of non-conforming products to secure their slice of new business.
But there is something else that automation brings to the lender: effective automated risk management and underwriting will enable it to look at a wider variety of customers and properties, and therefore a wider market. At edeus we use automated valuation models (AVMs) that guarantee risk is managed effectively.
AVMs are a part of what we at edeus call ‘skip a generation systems’. Technology drives our underwriting, our risk assessment, and the way we design products. AVMs and electronic scorecards allow us to remove the human element from risk management and underwriting. Not only does this streamline the application process, dramatically cutting down the time it takes to deal with a mortgage, but it provides a better quality of decision, too.
In order to build a ‘skip a generation system’, a new entrant like edeus has the advantage of starting with a blank sheet of paper, which is essential if a lender has aspirations to be a player in the market. The platform will have to have been specially designed for the target market. A lot of companies don’t bother building their platform from the bottom up and buy a generic system off the shelf. But then their platform won’t necessarily meet all the needs of brokers. The edeus system is bespoke, having been built with the needs of the broker in mind, data entry is easy and everything is kept simple as possible, so that no valuable time is lost.
Anyone who has been in an auction, a contract race, or tried to buy a new build knows that losing time during a mortgage application can cause infuriating losses. In the case of some non-conforming remortgage cases, delays in debt consolidation via mortgage approvals could mean the difference between keeping the bailiffs from the door or not. Hence edeus’s commitment to providing instant offers and instant funds.
Instant offers speed up the mortgage process because decisions can be made without the need to wait for paperwork. To avoid postal delays, we offer the facility to scan and upload documents directly onto the application. Electronic identification verification guarantees that in most cases no proof of identity is required. Well, we’re moving towards the paperless mortgage. There’s no future in dead trees.
Speed to completion
But it’s not only about the speed of offer it’s the speed from application to completion that really counts. Therefore the edeus proposition involves not only instant offers but also instant funds. Where it takes the majority of our competitors eight days to get an offer out, we’ll be offering instant offers within minutes and releasing remortgage funds in five days. And we intend to tighten the timeframe. So the client can then exchange immediately and arrange to complete quickly – and that will give brokers a competitive edge.
Brokers in the non-conforming sector have hailed the instant mortgages as ‘the biggest step forward in many years’ and they aren’t exaggerating. Mortgages this fast are going to kick-start some serious competition in the marketplace, which in turn is good news for both brokers and consumers.
Of course, it’s all about choice. Instant mortgages are a premium service and not everyone will need it. The customer will dictate how fast they want their mortgages to be provided. So brokers and customers will have a choice as to whether they want instant offers or real valuation, or instant funds for remortgages.
But that’s not the whole story. At edeus we believe that our service proposition is second to none. edeus’ rapid response technology is the first in the market to be designed and built with a truly integrated and seamless end-to-end process, so brokers can provide their clients with quick and certain decisions based on loan amounts, products and properties requested. Our product selector displays all relevant products and cascades to an alternative scheme where appropriate. For keeping on track, brokers can use our sophisticated client management system that goes beyond case-tracking. It allows instant access to the 10 most recent cases and allows to search and track entire pipeline of cases using a flexible range of criteria. Brokers can also sign up for case updates by SMS text message as well as the standard e-mail notification and keep up-to-date with the latest edeus product updates by downloading Edea or Edeo, our new virtual assistants.
Whether a new entrant or otherwise, in order to succeed in the market, you have to understand its synergies and constantly tailor your technology and service platform to the market’s needs. At edeus we believe we’ve equipped ourselves with the right weapons, which will enhance the competition in the market and therefore benefit the consumer. We are aiming at the fastest available release of funds in the UK: instant decisions, instant unconditional offers and remortgage completions in five days. That will cut timescales and therefore make life easier for intermediaries and their clients. By supplying them with reliable and consistent decisions, we will remove uncertainty from the non-conforming market. Something to look forward to.
