New developments in mortgage sector technology are announced on an almost daily basis at the moment. The latest breakthroughs, link-ups and systems could fill several pages every fortnight, but while 2002 brought many changes in this regard, it is the developments over the next 12 months that should forever alter the landscape of the mortgage industry for advisers.
The first few months of 2002 will be remembered for the sense of relief among lenders that CP98 had been withdrawn, and the fact that mortgage regulation had been postponed until 2004. However, it was a blow for the technology platform providers, many of whom had spent a great deal of time and energy in developing systems to meet the requirements set out in CP98.
Richard Hurst, communications manager at Future Mortgages, says: ‘At the time, CP98 was a catalyst for online innovation. Lenders were going to be responsible for product data and brokers’ compliance documentation so the only feasible solution was a technological one. However, the announcement of CP146 meant that while all the developments needed reworking the timetable of such re-vamped systems was not as crucial. Lenders will still need to adopt the technology needed to remain efficient, but it is now a case of the carrot rather than the stick.’
Nevertheless, the main sourcing systems, with their proposed common trading platforms, remained undeterred, and competition for lenders’ signatures continued apace during 2002. The Mortgage Brain consortium secured deals with some of the UK’s largest lenders, although Trigold managed to keep itself in the hunt by signing Abbey National, the country’s second largest lender.
In the second half of the year, the competition moved onto distribution with both systems looking to sign up as many mortgage broker networks as possible.
While no-one disagrees that sourcing systems need to compete at the front end, through ease of use and product data and that actual online applications should come through one channel, there is a great deal of support for the idea that there needs to be more than one solution to prevent a monopoly. No single company is going to be able to knock out the competitors, so there is a groundswell of opinion that believes they need to bite the bullet and join together for this aspect.
Brian Hall, senior consultant for IT provider Marlborough Stirling, warns too much competition can be harmful, as it distracts from what brokers need ‘ systems to allow online applications. Hall says: ‘Mortgage Brain and Trigold continue to cut deals with individual players, but what the industry really requires are open standards that allow both lenders and distributors to get on with developing strategic solutions that are independent of any single platform. This will then allow the development of systems that truly resolve intermediary requirements.’
A joint decision
It was only at the back end of the year that Mortgage Brain and Mortgage 2000 signed a deal together designed to do just this: to compete on mortgage sourcing but to develop and share the same back office trading software. However, it still cuts the other systems out of the loop.
Mark Lofthouse, chief executive of the Mortgage Trading Exchange, says: ‘It makes sense to join the sourcing systems together for e-trading. At the moment we are still concentrating on connectivity to the lenders, which is not a trivial task.’ This technology is expected to go on general release next month.
As a consequence, mortgage lenders will need to act in tandem with the trading platforms this year if they are to steal the march on the competition as online applications are set to be the fastest growing distribution channel.
Michael Bolton, director of mortgages at Birmingham Midshires Solutions, says: ‘Profit margins in the mortgage market will continue to come under pressure. It does not matter which sector of the market you are in, you have got to adapt to deal with this low margin environment. Therefore lenders have got to embrace technology. It is no longer a ‘nice to have’ ‘ it is a ‘must have.”
There are already a number of lenders who are now able to conduct online business and one of the most successful, Future Mortgages, claims that 35% of its business now comes to it online. However, its view of the market in 2003 is still pessimistic. Hurst says: ‘Technology is not going to be the panacea that some have claimed. We would not actually want to do much more than this percentage of our business in this way because it is not a good idea to be overly reliant on any one-distribution source.
‘Any lender expecting to do all their business online is misguided. No one is suggesting that everyone is going to be doing online banking, so likewise, why should mortgage brokers be doing all their applications online? It is just another channel.’
However, Bolton disagrees. Birmingham Midshires has now launched its own proposition and is anticipating a rapid take-up among brokers. Bolton says: ‘If some lenders are taking that view then they are extremely naÃ¯ve and need to look at their business model. The online option does not get in the way of usual business relationships; it doesn’t cut across broker relationships. It is not an alternative; it is a means to an end. The ultimate objective is 100% online.’
This view is shared by the internet banks, which are expecting to see a huge increase in business volumes coming through this medium in 2003.
Mark Curran, head of e-commerce at internet bank, Intelligent Finance (IF), agrees with Bolton: ‘As a modern lender we have to find the most cost effective method of acquisition. We will do as much online business as possible, and while a lot still fall back on traditional methods, more lenders will develop online trading this year. In four to five years brokers could be so self-sufficient that they only ever really need speak to the lender in special circumstances.’
Despite these differences of opinion, it is clear that competition for mortgage intermediary business is still at an early stage.
Stuart Glendinning, director at the Professional Adviser Alliance, says: ‘Intermediaries submitting mortgages online has not taken off. It has been much hyped over the last three years, but some people have started to dismiss the idea that it will ever make a huge impact. But it will happen. Once it becomes easier to submit an application form online than to post it, why wouldn’t brokers do it that way?’
Apart from the competition among sourcing systems and the development of lenders’ websites, one other key issue this year will be where increased technology leaves the long-term future of the packager sector. And specifically, whether online application forms will remove them from the loop or actually make their role more efficient and valuable.
Bolton, says: ‘It is fair to say the packager market has recognised that it has been old fashioned and it has to evolve to survive statutory regulation next year. Birmingham Midshires has a limited number of packagers and those who we continue to do business with are rapidly evolving into distributors of a different nature.’
Phil Green, director at packager Mortgage Pack, bears this prediction out when he says: ‘Technology is going to be a key factor for packagers going forward. It is not a threat, but to be successful packagers are going to have to embrace the twenty-first century. Brokers are going to be using those packagers with user-friendly systems that can provide them with audit trails, case-tracking and so on.’
However, Hurst is adamant brokers will still have recourse to use the services of packagers for the foreseeable future.
He says: ‘It is not a threat to packagers. They should be able to benefit too because they can use technology to help them package applications better. It could actually create a dramatic increase in the quality of packaging.’
The other major issue for 2003 is that of Sellers’ Packs. With the re-introduction of the Homes Bill in the Queen’s speech last year, this controversial measure could come to fruition this year. Designed to speed up and safeguard the home-buying process the proposition has nevertheless come under vocal attack from some within the lender community. They are seen by some as a measure that addresses a problem which does not exist, and will prove to be a bureaucratic and costly piece of legislation that will resolve little and create problems for brokers and lenders alike.
John Heron, chairman of the Intermediary Mortgage Lenders Association, says: ‘Improving the technology to reduce costs far outweighs this package of anachronistic measures. Lenders are already introducing processes allowing electronic applications and e-processing, as well as providing online access to case tracking, which speeds the whole process up. The Land Registry is engaged in ‘dematerialisation’ where the need to ensure ownership of the deeds can all be conducted online, and this will make a radical difference as well.’
As we move into 2003, the changes in technology will make it seem as if events are moving faster as the deadlines get closer.
Last year Basle II, the Sellers’ Pack and statutory regulation all seemed a long way off, but as Hall says: ’12 months on they are not so distant and around the industry minds are being focused.’
Ben Marquand is editor
Technology platforms that compete over sourcing but share a common lender interface are increasingly likely.
Lenders are unsure how far online applications will grow, with some unwilling to forgo traditional methods completely.
Seller’s packs could prove expensive and time consuming as technology has already superceded them.