We all know the annoying but memorable phrase, ‘computer says no’. It’s meant to sum up the epitome of inflexible, nonsensical customer service decisions.
But for the automated valuation world, to be able to deliver a definite no decision at an early stage in the mortgage journey is an aspiration and a goal it is on its way to reaching.
Delivering the ‘no’ decision
AVM solutions are already a powerful tool for lenders. A yes decision from an automated valuation model propels a case from application to offer in just a few days giving the broker and borrower a slick, speedy service.
But if the AVM should cast any doubts on what the property is worth – the computer can’t say no to the application.
That responsibility is handed back to the humans. A surveyor is instructed and their report reviewed by an underwriter before a no decision is handed down.
Benefits of an early no for lenders and borrowers
We believe, with the right development, the computer before long will be able to say no as confidently as it can say yes.
By combining the power of an automated valuation with the capability to automatically establish risks using data, a digital valuer could produce a decision in seconds. Ideally, this decision would be delivered alongside the Decision in Principle (DIP).
Knowing upfront, at the earliest opportunity that the application will not be approved by the lender holds multiple benefits for lenders, borrowers and brokers.
Helping lenders avoid mortgage drop-outs
No one talks about the cases that fall outside criteria further down the line.
The mortgage drop-outs are a completely forgotten about part of the process.
Do lenders know how much time and money is spent on the cases that don’t go anywhere?
According to the Intermediary Mortgage Lenders Association (IMLA), in quarter one 13% of full mortgage applications did not make it to offer.
While underwriters are spending time on those 13% of applications that are going nowhere, the cases which meet criteria sit in the queue. They progress slower to offer because of an inefficient use of resources.
Helping lenders speed up applications
And in busy periods, when lenders are flooded with applications, the efficient use of resources is even more important. Service levels could still be maintained during these times if underwriters can focus on the borrowers they can help, not the ones they can’t.
Reaching a definite decision quickly will also save lenders the cost of a physical valuation. A digital valuer could return a confident decision in a matter of seconds rather than days or weeks and at the fraction of the cost of in-person survey.
Giving confident decisions to borrowers
All first-time buyers or home movers want to know, as soon as possible, is can I borrow what I need to buy my dream home.
If a digital valuation is produced, ideally at DIP stage, they’ll get a confident decision straight away.
If it’s a no, they can try their luck with a different lender if the risks identified are ones they’re prepared to live with. Or, they can ditch the doomed house and carrying on hunting.
If it’s a yes, but with a loan to value cap, the borrowers can choose to stump up more cash or negotiate harder with the seller in light of the valuation.
Whatever their decision, a faster time to a no decision means less pain much further into the process long after they’ve provided all their documents.
Competitive advantage for lenders
Among the big mortgage lenders there’s little price differentiation. So those that can give a quick and accurate valuation decision upfront to brokers will gain a powerful competitive advantage.
That’s because working on applications that end in a decline weeks into the process isn’t just a waste of the lender’s resources, it’s a waste of the broker’s too.
Perhaps even more so. When the case drops out of a lender’s pipeline, the lender can move on. But the broker can’t.
Right now, on receipt of a positive DIP decision the broker spends time putting together a fully packaged application tailored to the lenders’ specific requirements. Once submitted, the underwriter may request more information while the application is queued, waiting for a valuation.
If the valuation knocks the case out of criteria – it’s back to the drawing board for the broker weeks after applying for the initial DIP. That’s a lot of work to do for free. And time spent replacing a case is valuable time lost to new business.
Driving efficiency for lenders
A digital valuer tool would not be able to carry out 100% of a lenders’ valuation requirements. But it can deliver the most effective and cost efficient valuation decision at the earliest point in the journey.
Doing so makes the mortgage application process faster and more cost effective not just for the cases that can proceed, but for the ones that can’t.