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Brace yourself for a brave new world in the mortgage market, because it’s here. Anyone in our industry that has been following the ceaseless march of technology won’t have failed to notice some significant announcements this year.
In April, HSBC launched its ‘Mortgage in a Day’ service and Natwest signaled its intent to instruct a valuation as soon as it receives a mortgage application in March.
Add to this the government’s consultation on the Digital Economy Bill reported at the end of May, which seems to pave the way for switching mortgage providers within a week, and the winds of change are blowing hard in one direction. If we are honest with ourselves, customer expectations are already ahead of our industry. Instant information and decisions have become the norm in the increasingly digital consumer marketplace and mortgage lenders have had to respond.
As a result, streamlining the mortgage application process and reducing the time to offer have become a key commercial objective. Enabling faster decision times and using data more efficiently to make smarter lending decisions is now a necessity rather than a luxury. This is particularly true in the face of greater competition from new market entrants. More digitally-savvy challenger banks and lenders are helping to raise the bar and as a result the industry as a whole is looking to improve the experience lenders provide to mortgage customers.
Having said that, this extra commitment to improving the customer experience is not without its challenges and comes at an additional cost to lenders’ business plans. In the last 12 months there have been 171,000 mortgage approvals cancelled according to Bank of England data, and these figures understate the scale of the issue as they do not include applications that fail to result in a mortgage approval.
For remortgage cancellations, lenders are already bearing a significant proportion of the valuation cost, some of which has been offset by greater use of AVMs in this segment of the market. For home purchase the majority of valuations are still conducted by surveyors, and charged to the borrower.
The latest trend for lenders to take on the cost of failed cases – as recently announced by RBS – is a considerable additional commitment to improving customer experience and service quality. These costs are set to increase given the move on valuation fees from ‘borrower pays’ to ‘lender pays’ as recently signalled by Nationwide. But this additional financial commitment comes as the mortgage market looks to grow gross lending in the face of an increasingly static housing market and considerable margin pressure.
This creates a dilemma. While sometimes necessary, it’s clear that physical valuations are a time consuming and costly part of the mortgage application process. With this in mind, the continued development of AVM technology and desktop valuations within a risk controlled framework is vital to helping lenders deliver an improved customer experience while managing operational costs.
Although initial question marks were raised over the validity and reliability of AVMs to deliver accurate valuations and maintain performance over a housing cycle, AVM technology now underpins many of the most crucial decisions in the lending market. As customer expectations rise and time pressures increase extra reliance on fast, accurate and reliable automation will only increase bringing the technology even further to the fore.
This article first appeared in Mortgage Solutions
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