The market rebound has exposed long standing flaws in the home purchasing process
Ian Larkin is chief executive of online mortgage broker Trussle
The property market was upended when the UK went into lockdown in March. Would-be buyers were unable to complete viewings, surveyors were unable to access properties and transactions ground to a near-halt, with prices tumbling 1.7% in May . In response measures were applied, with mortgage payment holidays and a Stamp Duty holiday introduced until March 2021.
Since the market reopened in May we have seen a rebound – there are 50% more transactions in progress than this time last year and prices have increased by 5.8% in the last month alone. Mortgage lender operations, already under pressure from the transition to remote working and the need to process a significant number of mortgage payment holidays, are struggling to cope with the increased demand. We’re now seeing average mortgage approval times twice as long as this time last year .
The financial crisis in 2008 exposed a lack of capital in the mortgage industry. Tremendous work was then done to improve balance sheets and risk appetite, leaving us all feeling comfortable that the industry was in strong shape. However, the pandemic has exposed another issue in the mortgage industry – a lack of operational resilience. This issue is impacting consumers. Lenders are suppressing demand by increasing rates and reducing product availability for low deposit borrowers, effectively closing the market to many first-time buyers. And processing delays, while being generally inconvenient, are going to cause many aspiring homebuyers to miss the March deadline, and find themselves liable for an unexpected Stamp Duty bill of up to £15,000.
All in all 2020 has been a remarkable year for the property market and leaves the mortgage industry with a serious challenge about operational adaptability. Legacy systems and analogue processes have long been the norm and are now causing serious detriment.
The good news is that these can be addressed. The challenge does not sit with lenders alone – brokers, conveyancers and surveyors can make a big difference. As an online mortgage broker, Trussle is investing in the right technology to make big improvements in the home financing journey for the benefit of both customers and lenders.
Improving speed and certainty
Back-and-forth between underwriters and brokers and, in turn, between these brokers and their customers drives a huge increase in how long it takes for customers to receive a mortgage offer. Yet, most of this is driven by queries on basic documents like bank statements. Better packaging of cases reduces the need for back-and-forth once an application is submitted, by providing all documents up front and pre-empting further questions about things such as income and expenditure. Open Banking would reduce the manual time spent on an application by enabling underwriters to answer most of their own questions without reverting to the broker/customer.
Brokers can utilise data to better qualify customers ahead of submitting their application to a lender. This includes conducting credit searches, automated valuation models and richer affordability assessments. Trussle has deployed automated Electronic Identity Verification (EIDV) which makes the process easier for our customers and enables our advisors to package loan application materials more efficiently.
More accurate customer qualification pre-submission goes a long way to reducing the number of mortgage applications that are declined, allowing lenders and brokers to spend their time on applications that are almost certain of approval. And most importantly, it reduces customer anxiety by giving them more certainty on their home financing.
Finally, where our advisors have applied automated valuations at the start of the process it has reduced decline rates since there are much less subsequent down-valuations by lenders. This means more cost for the broker but less cost, time and frustration in the overall process.
Automating more of the journey would provide better qualification, more suitable cases for approvals and a smoother customer experience. This will require buy-in from lenders, including providing greater transparency and clarification on their credit policies. Buying a home is often cited as one of the most stressful things in life. Changing how lenders and brokers collaborate could not only clear the current bottlenecks but also ensure we never see anything similar again.