Recent advances in lender technology are reshaping the mortgage market but are unlikely to challenge brokers’ dominant market share in the short term.
However, the FCA’s desire to boost digital innovation could see “partial robo-advice” help lenders cut into advised business.
A new Iress broker mortgage survey says brokers are set to control 70 per cent of the mortgage market in 2016 and 2017, largely due to the shift to advised mortgage sales demanded by the Mortgage Market Review.
But the report says one potential challenge to broker dominance is the “growing consumer demand for digitalisation” and the way lenders “invest in digital technologies for their direct sales, both online and in branches, as well as their intermediary portals”.
One recent example of this is the launch of digital-only Atom Bank last week.
Atom has launched a savings app and plans to expand further into mortgages, current accounts, debit and credit cards this year.
The app uses face and voice recognition to identify users and provide security, and claims to offer paper-free banking.
Another example is the launch of New Street Mortgages in February. Its main selling point is how it uses analytics to speed up its decision-making and improve transparency around buy-to-let lending.
The lender says some customers will be able to secure mortgages within five days.
“We have got a regulator that wants to work with the industry, that recognises the need for innovation, and now sees the benefits of the digital revolution and will come with us on that journey”
Lloyds Banking Group also initiated a video system last month that lets customers talk to mortgage advisers remotely.
But Iress says advances in lender technology are unlikely to threaten broker market share to the point where advisers are made redundant.
The report says: “We don’t see this progressing to the stage where the mortgage intermediary is replaced by robo-advice.”
The growth of mortgage robo-advice is hampered by the wording of the MMR, which restricts online sales to being execution-only.
If the borrower needs to ask a question, then the sale switches to being advised and needs human interaction.
But Iress principal mortgage consultant Henry Woodcock says “partial robo-advice”, where consumers deal almost entirely with lenders’ software programmes and have very limited human contact, could become a reality and threaten brokers.
This would require the FCA to relax its rules around mortgage robo-advice, says Woodcock.
And the FCA has already made moves in this direction.
The regulator consulted on whether regulation could be a barrier to digital innovation in March 2015, promised a response as part of the Financial Advice Market Review, then brought in more consultations on how to define advice in March 2016.
Building Societies Association head of policy Paul Broadhead says the FCA is willing to review its rules around online mortgage advice.
He says: “They realise there might be, in some circumstance, areas where they need to amend their rules to make sure they are fit for purpose to respond to how society has changed.
“We have got a regulator that wants to work with the industry, that recognises the need for innovation, and now sees the benefits of the digital revolution and will come with us on that journey.”
Woodcock says: “If they relax some of the rules around that space, then we might see partial robo-advice in that space. But in terms of replacing a broker, it would be very difficult for a computer system to replace that conversation.
“Guided advice is where I can see it happening and I can see it happening in the direct-to consumer space.”
The broker perspective on lender service and technology is that it has improved in some areas but lags behind in others.
The Iress survey of Association of Mortgage Intermediaries members found around three-quarters of lenders now meet brokers’ main requirement of scanning and attaching documents at the point of sale.
The proportion of lenders sending brokers email updates on cases imp-roved from 33 per cent in 214 to 69 per cent in 2015.
But 53 per cent of advisers ranked lenders’ systems as very poor to average.
“It wasn’t so long ago everything was paper-based, but there is still too much paperwork, too many forms to sign”
Trinity Financial Group products and communications manager Aaron Strutt says: “The lenders know the market is pushing to be more digital. They know they have got to do more, but some of them still have some catching up to do.”
Your Mortgage Decisions co-owner Dominik Lipnicki says: “It wasn’t so long ago everything was paper- based, but there is still too much paperwork, too many forms to sign. It would make a lot more sense if the industry caught up with other industries when it comes to technology.”
Woodcock says lenders now have the money and the will to invest more in technology now they have implemented two major pieces of mortgage regulation.
He says: “Because of the Mortgage Credit Directive and the extra work that had to be done, and following on from bedding in the MMR, lenders’ purses were constrained in delivering some of these service improvements.
“As that beds in, the expectation is leaders should have time and money set aside to actually fix some of those areas.
“So they are starting to move down that track and they have got to up their game. If I had a scorecard I would give them seven out of 10 for the last year, but unfortunately the part that is missing is quite crucial to brokers.”