Fintech in 2021: Future of mortgages
The year 2020 has definitely been a roller coaster ride for those close to the mortgage sector. Both lenders and intermediaries have had plenty to contend with, including facing the impact of the lock down in March, the Bank of England slashing interest rates to a historic lows, millions taking mortgage holidays and the announcement of reduced stamp duty rates which led to historic peaks in mortgage activity.
With 2020 now past us and the pandemic accelerating the shift towards a more digital world, is 2021 going to finally be the year when the mortgages sector is truly transformed? It’s fair to say that the mortgage sector has fallen behind other financial services when it comes to digital innovation. In part, this is because of inefficiencies of the application process with most traditional lenders. Is this about to change? Whilst predicting the future is not always easy, here are our thoughts on what 2021 will bring for mortgages.
Lenders investing in digital
It’s clear that consumers want a seamless digital experience and are frustrated with the time consuming process that they often have to face. Lenders are responding with urgency, in part driven by competitive pressures of tech firms entering the market. With APIs becoming increasingly available, steps such as verification, assessing an individual’s affordability and performing property valuations can now happen in seconds.
We’re already started to see a shift. As an example, in November 2020, Sopra Banking Software (SBS) announced the launch of a new digital platform for Kensington Mortgages. They’ve been investing in simplifying the underwriting process and making it easier for brokers to submit applications.
Mortgage intermediaries are looking for better integrations with lenders and you can see the sourcing systems like Iress and Twenty7Tec working hard to create end to end connections with as many lenders as possible. It’s only a matter of time until some of the larger lenders provide similar access.
Changing consumer behaviour
We all hope that when it comes to the effects of the pandemic, that we’ve left the worse of it in 2020. However, it’s likely the aftermath is going to be much more sustained when it comes to the way consumers manage their mortgage.
First of all, we think there will be more people who will stay with their existing lender rather than switching. One key reason is that there have been over 2 million mortgage holidays granted with the average borrower deferring a repayment of £775 per month. Whilst it should not impact your credit report, it seems there are some banks and building societies that are likely to not allow households financially hit by the coronavirus to remortgage. The other reason is that internal switches known as product transfers are quick to process and much more hassle free for the consumer. For intermediaries, this ultimately means that the number of people looking for assistance with their mortgage will get smaller.
The other significant change is that individuals who historically met their mortgage broker in person will now be more inclined to use a digital service, which is good news for the FinTech players in this space.
Open banking which launched in 2018 has attracted a whole number of new entrants into the mortgage sector. With consumers consent, it provides intermediaries and lenders access to their online bank statements and gives them the ability to analyse the data in seconds. The biggest challenge around open banking has been getting mainstream consumer adoption. With many still unfamiliar with the concept or are simply concerned with the level of access they would be giving up. However, every year adoption is on the rise and I do believe that the effects of the pandemic will help in that regards as more consumers look toward digital services that make their life easier.
Digital mortgage brokers
In 2016, you started to see the emergence of a new breed of digital mortgage brokers such as Habito, Trussle and Mojo Mortgages. Whilst you could name a long list of Fintechs who had aspirations to fix the soul crushing mortgage process, many of either not survived or pivoted from B2C business to B2B businesses.
For those who have survived, the primary reason has been due to the amount of investor funding they were able to secure. In total between Habito, Trussle and Mojo Mortgages, they have raised nearly £100 million pounds in funding. With a focus on providing intermediary services, you are now seeing the likes of Habito and Trussle also issuing their own mortgage products. We suspect on the whole 2020 has been a good year for them with more people looking for mortgage services online, however their market share compare to some of the established players like L&C and Countrywide plc remains to be small.
Comparison sites also continue to invest heavily in this space as they look for areas of growth. There were a number of interesting partnerships which took place such as MoneySuperMarket joint venture with Podium in 2018 and more recently Comparethemarket launches an execution-only service with Koodoo.
Identifying the disruptors
The mortgage market continues to attract new players like Sprive and Generation Home who are all trying to find interesting angles to enter and disrupt the mortgages industry. Generation Home are a new mortgage lender helping aspiring homeowners to get on the property ladder and Sprive helps existing homeowners become mortgage free, faster.
Speaking to Jinesh Vohra, the founder and CEO of Sprive, his view is that despite many Fintech’s focusing on mortgages struggling to get traction, that there are plenty of opportunities to innovate and disrupt.
“It’s all about putting the customer first and understanding how you can help them manage their mortgage better within the existing limitations set by traditional lenders.”
Sprive is currently in beta and by invitation only is helping homeowners chip away at their mortgage by using PISP (Open Banking). The premise behind their business is to encourage homeowners to make smart overpayments regularly, which can help them knock years of their mortgage and save thousands of pounds in interest.
Whilst we envisage 2021 will bring about more positive change for customers in the mortgage industry, but we expect 2022 will be the year where we’ll see true noticeable transformation. With hopefully the worst of the pandemic behind us, the coming year should be another exciting one for fintech’s and the mortgage sector specifically.