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Peak practice

The average life of a mortgage has fallen from seven years in 1996 to just four, according to the Institute of Actuaries. In the sub-prime market, the average is less than two years.

This means that even when the property boom begins to subside, IFAs and lenders will continue to face strong demand from borrowers for remortgaging into the future.

Many IFAs and lenders seem to be viewing the current surge in demand as short term and appear to be reluctant to alter their processes to cater for long-term buoyancy. But the long-term picture is that, as new mortgages decline in line with the subsidence of the property boom, remortgaging will continue to increase and plug the void.

Having just the right amount of resources and/or capacity to cater for peaks and troughs in demand is a difficult balance to strike and does require a rethink of attitudes and processes. But the implications are potentially damaging for those who do not get it right.

For example, many lenders are already taking too long to make a mortgage offer in principle, let alone process the application, leaving IFAs frustrated and customers more likely to pursue other lenders.

In recent years, pressure on lenders has risen. Margin squeezes, changes in legislation, higher customer expectations of service and new market entrants have all threatened the lending community. But, for the majority, these pressures are overshadowed by booming customer demand. In an industry where demand is high, lenders are weary of increasing their fixed costs and have tended to bury their heads in the sand.

If recent predictions by Halifax and Nationwide are accurate, it looks as if lenders will continue to enjoy the fruits of the booming market for some time yet. But this buoyant period will inevitably come to an end and demand for new mortgages will fall. But, in parallel with this, remortgaging will undoubtedly continue to increase and become a key business driver in forthcoming years.

According to the Council of Mortgage Lenders, remortgaging has this year reached record levels of £6.9bn. But how much will lenders need to change their businesses and processing models to cater for this trend?

Considering an average mortgage now lasts for four years, lenders will need to work harder to retain existing customers as well as attract new business. As the landscape changes with greater consolidation, lenders will not be able to win business on price alone. Brand reputation, customer service and value-added service offerings will become increasingly influential.

A key area where customer service can make a difference is at the mortgage offer stage. Research shows that once a mortgage offer has been received, a customer is unlikely to pursue offers from other lenders. So the quicker the conversion from application to offer can be made, the higher the lender&#39s customer acquisition rate is likely to be.

Yet, in their current state, many lenders fall short of offering this fast turn-round on mortgage offers and, therefore, dent customer service. By way of explanation for this, it could be argued that some lenders are sitting on their laurels while their full capacity is being utilised.

But the main barrier to achieving quicker turnaround of mortgage offers is that lenders are bogged down by age-old processes and systems that no are no longer compatible with the current lending landscape and certainly will not be compatible with the future lending landscape. This has been highlighted in the recent Sandler report.

Many lenders suffer from misconceptions about what is needed in order to change. Contrary to perception, an overhaul of all IT systems is not necessary. Improvements can be made by one small incremental step at a time, without detracting from their core business of lending to a buoyant market.

There are many routes that a lender can take to achieve a more efficient processing model for mortgage applications. The biggest stumbling block is that many do not have the time or resources to make a huge shift. But through making small steps, big improvements can be made.

For example, outsourcing processes that can impact significantly on customer service, such as valuations and conveyancing, can enable lenders to manage peaks and troughs in demand while providing quick turn-round on applications and high levels of service to IFAs and customers.

Outsourcing key processes is a cost-effective, flexible and impactful way to achieve faster turn-round of mortgage offers. In contrast to common belief, it need not be an overwhelming project. It can be done in small manageable stages and does not detrimentally impact on current business volumes.

What is clear is that some finetuning now will improve customer service in the short term and ensure that lenders have a competitive business model in place for the long term.

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