Despite lenders’ huge investment in technology, non-advised sales’ share of the mortgage market will remain low, experts predict.
Last week, Atom Bank was gran-ted a banking licence to become one of the UK’s few digital-only lenders. The branch-free bank, founded by Metro Bank creator Anthony Thomson and former First Direct chief executive Mark Mullen, has its eye set on the mortgage market.
While it is being tight-lipped on details of any of its propositions, chief operating and innovation officer Edward Twiddy says the bank’s lack of legacy business will allow it to offer better rates and more up-to-date technology than traditional lenders.
At the same time, the FCA is exploring the barriers to digital innovation and investigating why execution-only sales have not taken off.
Twiddy says Atom’s digital-only platform and freedom from out-of-date business models will enable it to challenge more established players.
He says the banking market is “eating itself alive” and putting “very
restrictive offers out” to customers.
“The mortgage industry is going through massive convulsion at the moment as it tries to work out how to price mortgages.”
Twiddy says the bank is free to choose its fixed costs because it is not tied down by legacy real estate, complicated corporate structures created out of years of mergers and acquisitions as well as old revenue models.
He says: “For customers we can design products and propositions which are priced differently and competitively. We can also design an app and an experience which none of the others can because their core banking systems are taped together over the years.
“The absence of all of that for us means we can put technology
onto our systems that they can’t deal with.”
Since the rollout of the Mortgage Market Review, brokers’ share of the market has grown as lenders failed to keep up with the changes and offer cost-effective advice in branch.
Commentators say lenders are working on improving online execution-only channels in a bid to boost sales but will struggle to complete deals without straying into advice.
Iress principal mortgage consultant Henry Woodcock says: “The FCA is starting to see there’s a belief that regulation is holding back innovation, particularly digitally. The thing that holds that back the most is restricted access to execution-only because the regulator has directed they want most people to take advice.”
Earlier this month the FCA published a call for input on the regulatory barriers to innovation in digital and mobile solutions.
Woodcock says lack of investment and fears of regulatory backlash if customers are found to have been guided towards a product has held lenders back. He says: “A lot of lenders outside the 10 largest didn’t invest in that technology, they were too busy getting their houses in
order, now they will be thinking about playing catch-up.
“There’s a worry if they don’t get the system right and it leads the person to choosing a mortgage which is not correct for them, they will have an issue with the regulator.”
While Woodcock thinks intermediaries’ market share will not drop below 50 per cent, he believes developments such as “assisted digital sales” could tip the balance back toward direct.
Council of Mortgage Lenders figures for the first quarter of 2015 put intermediaries’ share at 65.3 per cent, but industry estimates suggest it is around the 70 per cent mark.
Woodcock says: “One of the changes we’re seeing is ‘assisted digital’, where someone calls into a branch or phones and they are given a link to a webpage where they answer some questions ahead of an appointment.
“It’s starting some of the journey remotely so the questions of a fact find are done – so half an hour of the interview can be removed because the applicant has done the work themselves. That can help reduce the two to three hour conversations, and I can see that growing.
“There’ll be a tussle as lenders tempt people to come to them directly, either through execution-only or a simplified sales process that gives them advice but reduces the length of meetings.”
London & Country associate dir-ector of communications David Hollingworth says despite lenders’ efforts, appetite for online sales “has not gathered the momentum it has in other areas of financial services”.
The broker previously offered customers the ability to transact online, producing key facts illustrations and applications, but decided it was not worth maintaining the systems because so many customers wanted to ring in and talk to an adviser anyway. He says: “I don’t think anyone will abandon potential for direct online transactions and in theory customers will become more savvy with that. You could argue someone who’s remortgaged a few times might be quite willing to pull the trigger online.
“However, the other change brought in by the MMR is that criteria is a far bigger factor in lender choice than it was before.
“Now if you don’t tick all the boxes you’ve got to travel through a maze and that’s why intermediary business is resurgent. It’s not ‘can I get the best rate?’, more ‘can I get this mortgage?’”
Technology firm Mortgage Brain chief executive Mark Lofthouse agrees.
He says: “The best solution for the vast majority of people is brokers plus technology. Going technology-only with the biggest investment a customer’s probably going to make in their life seems like a brave route, and only someone with sufficient knowledge is likely to be prepared
to take it.”
Association of Mortgage Intermediaries chief executive Robert Sinclair says: “You can do non-advised for a remortgage with the same lender, but anywhere you move the customer across or move house, it’s very hard to do that with technology. It’s the same in the investment world, it’s very hard to do an execution-only transaction. People will build online solutions but it will be advised, not non-advised.”