The technology revolution has swept through the mortgage industry, radically transforming the way we do business, and there is little sign that the pace of change is set to slow anytime soon.
Cast your mind back about 10 years, and we were living in a very different world altogether. Do you remember the regular problems prime mortgage lenders faced after launching a market-leading product? It was very often the case in those days for the lender to be somewhat ill-equipped to cope with the sudden spike in business volumes, and struggle to handle the surge in applications.
Mortgage applications could take weeks, if not months, to process, causing embarrassment for the intermediary, who had the painful task of explaining to their client why their property transaction was being delayed, and cause stress and uncertainty for the borrower.
Word rapidly spread among intermediaries that the lender had good rates, but was unable to handle business when things got busy. Its reputation went through the floor, and often stayed there, because brokers were slow to forgive, and unwilling to risk facing a repeat of those servicing problems. Now mortgage lenders have no valid excuse for dragging their feet over applications.
Technology creep
During the last decade, e-mail and the internet have crept relentlessly into every corner of the industry. In 1997, most companies were waking up to e-mail, although few realised how it would revolutionise the way they did business. By 2000, staff at mortgage lenders were confidently talking to each other on the company intranet and communicating with brokers over the internet.
Brokers could now take the unprecedented step of submitting their mortgage applications online. It was a key moment in the industry’s technological revolution, saving brokers both time and frustration, and it wasn’t long before other lenders, notably Abbey and Halifax, followed suit.
That opened the gates for the next wave of innovations, as more and more lenders adopted online trading platforms and offered online decisions-in-principle. What was once seen as radical quickly became the norm, with brokers and intermediaries free to make online applications to the top 20 or 30 lenders.
Online trading platforms now have what is called the ‘hygiene factor’. They are no longer that special something that motivates customers to use your services, but a basic expectation. If you can’t accept online applications for prime residential mortgages, your customers will look elsewhere – it’s as simple as that.
Lenders are not the only ones looking to exploit and benefit from technology. Brokers have enthusiastically embraced the revolution, and not just for mortgage business. Growing numbers now make online applications for life insurance and protection, and are quite rightly looking to extend electronic transactions into every corner of their businesses.
The next step
So what is the next step? In a bid to further speed up applications and cut costs, lenders have been examining how to replace the traditional property survey with automated valuation models (AVMs). Hometrack is leading the way in AVMs, and other companies are entering the market.
So far, most have looked at using AVMs for a limited part of their book, typically remortgage business up to 75 per cent loan-to-value, but if that proves a success, they will gradually extend them to a wider range of borrowers and deals.
Automation is not just quick and convenient for the client, it is the final piece in the jigsaw that will allow lenders to underwrite online and create instant, guaranteed mortgage offers. Lenders have already seized on the opportunities this presents, particularly GMAC-RFC, which now allows brokers to make point-of-sale offers in a matter of minutes.
Its rivals have been quick to follow. For example edeus has introduced a similar facility. BM Solutions has announced that it is set to follow soon and, like every technological innovation, instant online mortgage offers at point-of-sale will become the norm in the next few years.
Instant online offers are set to be the major battleground during the coming five years or so. Any lender that is serious about its future must enter the arena. The battle will be fought both in the prime mortgage sector and in particular the specialist market. Specialist lenders have so far been the main driver of technological innovation, and that is set to continue.
The winners will be those lenders who use technology and service to differentiate themselves from their rivals. With the possible exception of HBOS, there is no major recognised brand or pace setter in the UK lending market, but technology gives lenders an opportunity to change that. They can differentiate themselves and win a mountain of new business by building a corporate strategy that places technology and superior service at its very heart.
To achieve this, communications will have to be slick. No hiccups, no glitches. This could even mean keeping your doors open, online and possibly even offline, after 5pm. That is what customers increasingly expect, in a 24-hour, seven days a week culture.
Some of the proposed changes have been quite startling. Glasgow-based mortgage brokers, Moneyquest, for example, have even suggested offering 24-hour broking services, as an added benefit for their busier customers. Instant mortgage offers look likely to become the norm. Customers will come to expect them, and if they’re not available, they will look elsewhere. If you cannot keep up and do not offer instant mortgages, you could be seriously jeopardising the success and longevity of your business.
This is another radical change that we will soon take for granted. But think of where it will lead us. It could mean lenders will routinely take just three working days to finalise the mortgage offer. The entire house buying process could be completed in just 10 working days, from mortgage offer to completion, even where there is a chain involved. This would thoroughly transform the UK's notoriously painful conveyancing process, and is a prize we should all be striving towards.
Winning the war
Many mortgage lenders must now re-assess how their technology department sits within their business. To win the technology war the department must sit at the very core, providing direct input into the company's business plan.
Lenders should constantly ask intermediaries what enhancements in technology and communications they would like to see, and feed the results to their technology department. The lender should then use those enhancements to help its sales and marketing drive.
Lenders who make sourcing a mortgage convenient and hassle-free for broker and client will enjoy repeat business and build a long-term, ongoing relationships with their customers. Word-of-mouth will attract other customers, keen to see what they have to offer. There will be a direct financial pay-off.
All this electronic activity and innovation is not restricted to lenders. Brokers and intermediaries are being increasingly innovative. Hundreds of small and medium-sized brokers are enthusiastically embracing online marketing, building their own sites to promote their businesses and attract new customers. They are also using it as a relationship management tool, strengthening links with existing clients and boosting retention rates.
Alliance & Leicester has been a pioneer in electronic communications, and is determined to remain in the vanguard. We are currently finalising our technology requirements for the next few years, and the process leading to instant offers with AVMs as a routine feature could follow within the next 12 to 18 months.
Forward-looking lenders will be looking to build a technology based-service. Lenders are finding it increasingly difficult to present their customers with a unique selling point. We are not like, say, clothes retailers, where Burberry, Marks & Spencer, Next and Primark all target different sectors of the market, and are seen as having something different to offer. Prime, specialist and buy-to-let mortgages now have no major brand differentiation. Rate, plus a handful of product features, is what matters most to our customers. But it does not have to be this way.
Lenders have to find other ways of selling our strengths, and the combination of technology and excellent service is how we will increasingly define ourselves, and market our attractions to customers.
The mortgage industry has come a long, long way in the last 10 years, but it still has a long way to go. Those lenders who fail to embrace constant technological change simply will not last the course.
