Earlier this month, GMAC-RFC became the first lender to launch instant mortgage offers using automated valuation models (AVMs).
Describing it as a revolutionary and pioneering step, GMAC-RFC says the new system was launched to meet consumer demand and removes delays in the mortgage offer process which can often cause unnecessary stress, extra cost and hassle.
The new technology now means the timeline for obtaining a full mortgage offer has been reduced from weeks to a matter of minutes. At the moment the system is only available to a controlled group of mortgage brokers and packagers, but will be rolled out to all intermediaries and packagers over the next 10 weeks.
Jeff Knight, director of marketing at GMAC-RFC, says: “This new technology will revolutionise the house buying process, and is in direct response to consumer demand for greater immediacy and certainty. In the 21st century, there is no reason why a mortgage offer should take weeks to be approved by a lender. With our pioneering technology, it will now take minutes.”
Ray Boulger senior technical manger at John Charcol, agrees that the move will ‘revolutionise’ the mortgage market? But is he right?
Is the market willing and able to move with the times and use technology to its advantage? Looking ahead to 2010, will the mortgage industry be transformed by technological advances or are certain parts of the process and certain players too stuck in their ways? Let’s see.
Why speed things up?
According to recent research commissioned by GMAC-RFC, there is clear demand from consumers for a quicker and more efficient offer process. Its analysis shows over two-thirds (68 per cent) of people in the UK said they would have liked to have received a mortgage or remortgage offer on the same day as application, while one-in-six homeowners experienced delays in getting a mortgage offer from their lender. One-in-10 also added these delays resulted in extra costs, such as bridging loans or actually having to find a new property to buy.
To date, the feedback from brokers and packagers on the new system is good with some heralding it as ‘ground-breaking’ and saying it will change the face of the industry.
Michael Clapper, CEO of the Enterprise Group, says: “We are seriously impressed with Point-of-Sale (POS) Plus. Offers that used to take two weeks are now achieved in 20 minutes. On the first day of pilot, we delivered nine offers and the brokers were totally blown away. I’m convinced this will revolutionise the mortgage process in the UK and I’m thrilled that we are one of the first to bring it to market with GMAC-RFC.”
What will the market look like and how will it work in 2010?
So what else in the house-buying process can be improved and made quicker by technology? The possibilities are endless. Now valuations are starting to be done automatically, what about searches, Home Information Packs (HIPs), identification checking, conveyancing and contact exchange and completion?
“In essence, you could be looking at the whole process being completed online eventually – whether that will be with us across the whole market by 2010 is perhaps a different matter,” says David Hollingworth, mortgage specialist at London & Country. “So far it has been the players with real focus on technology that have pulled the market along and new entrants, such as edeus, will also be well placed to capitalise, being able to adapt quickly without the legacy of ageing platforms and systems.”
Of course, the killer question is will the traditional 10 to 12 weeks to buy and move into a new home be reduced to just a couple of weeks?
Melanie Bien, associate director of Savills Private Finance, thinks not. “It is unlikely that by 2010 we will see transactions completed in just a couple of weeks; hopefully though the average of 12 weeks will be reduced considerably,” she says, “There are plenty of technological challenges ahead, requiring considerable investment on the part of lenders. But ultimately it will make for a slicker mortgage product, which will benefit lenders, brokers and consumers alike.”
Automated valuations
Whether AVMs will be the norm by 2010 is open to debate. GMAC-RFC’s new system means a traditional mortgage offer, with credit and valuation approved, is available within minutes of formally applying to GMAC-RFC online via a mortgage intermediary. A point-of-sale offer is no less binding than a traditional mortgage offer. Credit has been approved and so has the valuation. Like any mortgage offer, it can be withdrawn if audit checks discover fraud. It’s the same as a traditional binding mortgage offer, except that it is available immediately.
Merhdad Yousefi, head of intermediary mortgages at Alliance & Leicester, reckons at least four or five lenders will be doing instant offers by the end of this year and the AVM model will be the norm for remortgages up to 75 per cent loan-to-value (LTV) by 2010. By then, he says, AVMs will account for around 20 per cent of offers.
“Ongoing technological innovation and point-of-sale decisioning will be the two big issues that will dominate the mortgage market by 2010,” he says.
Tony Jones of Pink Home Loans puts the figure higher and says he expects about 60 per cent of lenders to be using AVMs by 2010. “AVMs are the flavour of the day. In the US they are much further down the line and a high proportion of mortgage offers are already generated by AVMs. In the UK, lenders like edeus are coming into the market and stimulating innovation in terms of processes and service. Meanwhile Kensington and several other lenders are rumoured to be working on similar things.”
Two leading rating agencies – Standard & Poor’s and Fitch – have put AVMs through rigorous testing and concluded that, over an entire portfolio, there was no material difference between automated and manual valuations. GMAC-RFC undertook the a similar exercise, comparing 17,500 manual valuations the lender had obtained with its automated equivalents, and reached the same conclusion.
Should the automated valuation be unavailable for the property, or in certain risk categories such as high LTV, buy-to-let (BTL), etc, the system will automatically instruct a physical valuation of the property. Valuers will respond to GMAC-RFC electronically and the broker will receive communication from GMAC-RFC enabling the mortgage offer to be printed a few days later. So even when an automated valuation is not available, the new process is better and quicker than the existing manual arrangements which hold customers up for weeks.
E-conveyancing
Solicitors have traditionally been seen as the slowest link in the mortgage chain, routinely blamed for delays and antiquated working processes. E-conveyancing could change that, but opinion is split on whether it will catch on or not.
Sally Laker, managing director of Mortgage Intelligence, says it looks like that is the way things are heading. “If we look back four years, people were still faxing one another,” she says. “Most things are done by e-mail these days and lots of mortgage brokers have Blackberries so they can e-mail on the move. Solicitors, on the other hand, probably want to keep things as they are, but there are always new firms that can see a niche market and the way forward. Maybe not by 2010, but a couple of years later, we might see solicitors working totally online.”
Hollingworth is equally optimistic. “Instant offers are now here and it is only a matter of time that the back-end conveyancing is bolted on to provide the possibility of very quick completion times. Everything will aim to cut out unnecessary paper-chasing and indeed we could find ourselves with a paperless process as electronic ID verification and digital signatures evolve into standard practice.”
In the case of e-conveyancing, the main consumer benefit will be derived from the greater transparency and more efficient management of the chain of interdependent transactions that are a common feature of home-buying and selling. There are already local authorities – such as Northampton, Windsor and Maidenhead – that are able to provide searches within 10 minutes. Additional data, such as deeds from the Land Registry, utilities and sewerage information, and searches from the Environment Agency and the Coal Authority are also already fully accessible electronically.
But other areas of the conveyancing process are slower and critics don’t see that changing. Yousefi reckons it will take longer than four years for e-conveyancing to catch on. “It won’t have taken off in a big way by 2010,” he says. “Solicitors don’t want to lose any of their income; some might do it but we would need to take a 10-year view of it and it would be something the government would have to push.”
Digital signatures
The ability to sign contracts online is a sticking point when it comes to e-conveyancing and something technology still has to convincingly overcome.
Laker says: “There is still so much faffing around before contracts are exchanged but if they were to be signed and exchanged online we would have to be comfortable with an online signature and I am not sure people are yet. But by 2010 who knows?”
Even though digital signatures have existed for quite a while, they certainly are not established as the ultimate in electronic security measures. For e-conveyancing, electronic signatures will have to be certified by a third party organisation who will confirm that the signature is valid and came from the person claiming to have sent it.
“We really need a pioneer to embrace digital signatures for it to take off,” says Yousefi. “But lenders will have a lot to deal with in the next few years with point-of-sale offers and AVMs.”
Cost savings?
So if the mortgage and house-buying industry is on its way to being 100 per cent online by 2010 what does this mean for the customer, apart from a quicker completion? Cheaper mortgages? Probably not.
“In terms of the impact on customers, I’m not sure we’ll see products getting even cheaper as they are already cut to the bone and can even be a loss leader for the lender in some cases,” says Hollingworth.
Improved efficiency will probably help lenders improve their position in this respect rather than savings being passed to customer or broker. In any case, putting these technological advances in place will incur significant development costs for the lender.
Jack Saxton, head of intermediary mortgages at Halifax, says the lender has spent millions of pounds getting to the current stage of technological development, and millions more will be spent on on-going costs. “Generally speaking, we have been working towards and driving technology towards a service-based proposition, where brokers and borrowers can do things at the click of a mouse rather than wading through paperwork. We have been investing in processes to make things better for the intermediary and client.”
Bien is more optimistic that we will see some cheaper products as a result of technology enabling brokers and lenders to do their jobs more effectively. “There is the danger that the consumer will be more spoilt for choice than ever before but that should lead to cheaper pricing and better deals as a result of the increased competition and increased technological efficiencies,” she says.
The future
In terms of technology and how it will shape the market, automated valuations and instant offers are just the beginning. They follow on from technological such as online applications, mortgage calculators and sourcing systems such as Trigold and Mortgage Brain, which have been at the fingertips of intermediaries and direct borrowers for some time now.
Without a doubt GMAC-RFC’s point-of-sale offers system is ground-breaking technology that will change the face of mortgage processing – today and in the future.
And although none of us has a crystal ball so cannot accurately predict what is going to happen in the future, it is fair to say that the already mature UK mortgage market will have developed further by 2010. More lenders will come onto the market, systems will be advanced and products become ever more innovative.
