Perspectives

Location, location, transformation

The mortgage of the future

Technological innovations such as distributed ledger technology and automated advice have the potential to make getting a mortgage quicker and more convenient. But could new regulation, in the form of PSD2 and ‘Open Banking’, go one step further and fundamentally transform the entire home-buying process?

Buying a home represents the largest financial commitment for most UK citizens. Getting the most suitable financing for your circumstances is imperative; even small fluctuations in interest rates can have a dramatic impact on total mortgage repayments.

But this can be a daunting task. There are several complex choices to be made including, but not limited to: level of fees, loan duration, fixed or variable interest rate, and interest-only or capital repayment options. Furthermore, once you’ve settled on the right option, there are lots of forms to be filled in which often require wet signatures, and paper documents to be presented before the final approval.

And that’s just the mortgage. Customers’ primary motivation is not the mortgage; they’re looking to buy a home. There are many stages and several invested parties, including estate agents, surveyors, solicitors and insurers.

Given all of these factors, we believe innovations, enabled by technology and by ‘open banking’ regulation, have great potential to simplify, streamline, and even transform the home-buying process, including the mortgage application and approval process.

Offering a helping hand

Incumbent banks have made some progress in digitising the customer on-boarding/account opening process for a mortgage, but the amount of paper documentation required can still be fairly onerous. There is, therefore, substantial scope for new technologies to make this process more efficient and to improve the customer experience.

A good example of this is our SmartID solution, enabled by distributed ledger technology (DLT). It allows individuals to maintain their own identity profile, with verification of attributes like address or date of birth provided by approved sources.

The use of SmartID in the mortgage customer on-boarding/account opening process could both reduce friction for the customer and bolster banks’ KYC processes. This process is likely to be facilitated by the opening up of customer transaction data mandated by the EU’s revised Payment Services Directive (PSD2) and the UK’s new Open Banking regime. Mortgage providers may, with the customer’s consent, access current account data verify employment status and to assess capacity for repayment.

New technologies can also help customers choose the mortgage that’s right for them. Our recent report The next frontier – The future of automated financial advice in the UK suggests that the heavily intermediated nature of the mortgage market, along with its often inefficient customer-facing processes, could drive adoption of automated advice (commonly known as robo-advice).

A platform offering automated advice could scour the entire market to find a customer’s ideal mortgage, taking into account their financial situation and preferences. Such a platform may also be able to access a customer’s transaction data, with their consent, to see a fuller picture of theirs financial history than can be acquired via paper documentation. This data would also be easier to process, analyse and monitor (e.g. for suspicious activity and KPI reporting) in a digital format.

Automated advice would eliminate the need to visit a mortgage broker in person, and could offer wider choice. Moreover, data from our recent automated advice report mentioned above indicates that 38 per cent of UK consumers would be willing to pay for such automated advice, 47 per cent of which would pay over £125.

Everything in one place

Open banking offers opportunities for banks beyond simply streamlining and optimising the mortgage process. Our report Open banking – How to flourish in an uncertain future explores how the advent of open banking could lead to the creation and adoption of holistic financial services platforms. It could also allow similar platforms to be created for adjacent services, of which the home-buying process is a perfect example.

Buying a home involves a number of different stages and players, including banks, with which homebuyers have to engage separately. This can create friction for customers. By establishing an ecosystem of providers, banks may be well placed to consolidate these stages via one interface, providing a seamless customer experience.

We envision a future in which the entire home-buying process can be carried out via one digital platform. This platform could connect to estate agents, surveyors, solicitors and, of course, banks, via application programming interfaces (APIs), which define standardised methods for interaction with software systems.

In this way, banks could provide a one-stop shop for the home-buying process. Using a single interface would thereby improve the customer experience in terms of speed, ease of use and convenience.

Moreover, the provider of such a platform could develop a truly meaningful customer relationship as, rather than simply selling its customers a product, they will have enabled them to fulfil a key life objective: buying a home.

Banks, therefore, have a real opportunity here to own, not only one of the most profitable retail banking products, but a relationship that covers one of the most important milestones in a person’s life.

View the mortgage brochure of the imaginary innovative future bank, Moneysafe below or download it here.

Discover further insight and analysis on the different options for the bank of the future at Deloitte.co.uk/FutureBankand join the debate on social media with #FutureBank.

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