Dudley Building Society head of credit Jonathan Moore reflects on the seven day mortgage switch proposals.
Dudley Building Society head of credit Jonathan Moore reflects on the sevenday mortgage switch proposals.
The recent suggestion that the government could attempt to introduce a seven day remortgaging process as part of its upcoming Digital Economy Bill is an interesting one, and is one which raises a number of important questions about the future direction of travel of the industry.
We have all become used to improvements in technology transforming our lives in ways which only a few years ago would have been unthinkable. Even ten years ago, who would have thought that we would be able to use debit cards without a pin; board a plane using our phones rather than a boarding card; easily and reliably switch our bank accounts in only seven days, and apply for a loan and receive the funds in less time than it takes to make a cup of tea. The consumer revolution is in full swing, and continually finds ways to surprise and delight us.
Within our own industry, we have seen tremendous change over the last couple of decades. Applications now arrive via a portal rather than via Royal Mail. We release charges electronically (and instantaneously) rather than via sealing documents. We carry out credit searches in moments which reveal the most startling level of detail of the behaviour of our applicants.
It is worth then asking whether a move to a sevenday process is simply a welcome continuation of all of the above, or whether it represents something which is not needed, and could even be unhelpful. There is no doubt that the technology already exists to facilitate the suggestion, albeit few lenders would currently be able to manage it on such a vast scale. Is it helpful though?
A move to sevenday turnaround has the potential to overly commoditise the process. It could create a sense of expectation, and foster a sense of the process being a relatively trivial one. After all, if you can remortgage in sevendays, then why not do it every time you want to capital raise. You want a new car and can collect it next weekend? Remortgage is your answer. You want to book a ‘round the world cruise’ but don’t have the cash? Remortgage!
For applicants with strong credit scores, vanilla characteristics and a low LTV, it should be relatively easy to introduce. The process can be automated to ensure this. Even for these applicants though, the expectation of a sevenday process will result in a risk that the selection process (of lender and product) is rushed.
For many applicants however, life is not so simple, and their needs are complex. For these applicants, a process which takes longer may well be advantageous. They will have time to reflect, and time to pull together the paperwork. For the lenders who deal with the more complex borrowers, it will give them time to ensure that the right assessment is made, which in the long run should lead to better decision making by lenders, better outcomes for customers and lower subsequent default rates. If seven day remortgaging is introduced, then manual underwriting will inevitably be rushed to accommodate this.
The proposal is worthy of consideration. Technological advances should challenge our ways of doing things, and in many or even most cases, we should find that we can do things better and that will usually mean more quickly as well. This particular proposal though has the potential to lead to poorer decision-making for both the consumer and the lender, and if that is the outcome then it is not a price worth paying, especially given that there appears to be little consumer pressure for this particular turnaround time, and where it does exist, it can often already be accommodated.
