Online mortgage adviser firms have consistently ruffled feathers among the mortgage world’s movers and shakers, and they don’t seem bothered by alienating some of the industry’s most influential. The stock response is, borrowers will vote with their feet.
The problem is, borrowers are voting with their feet, and it seems that their feet aren’t deserting the traditional face-to-face and telephone advisers.
This is fine, for the moment, but worrying about whether or not online mortgage advice is or is not advice, (at the moment it’s a dangerously simplified version of it) is diverting our attention away from a far, far bigger threat on the horizon.
Mortgage market upside down
This is Open Banking. Never heard of it? It’s been surprisingly little written about but, trust me, it is going to turn the whole mortgage market – indeed retail financial services – upside down.
Open Banking is UK legislation sponsored by the Competition and Markets Authority and it will come into law at the start of January 2018. In short, it’s going to force all of the major retail financial services providers make a standard set of application programming interfaces (APIs) for their systems publicly available.
An API is just a bit of programming code that allows one technology platform to talk to another, and at the moment most lenders hug these APIs tightly to their chests. This is the single reason that online mortgage brokers declare successes in terms of applications not completions right now.
The way technology stands at the moment means they can develop a platform that creates a slick customer experience online, but the application process that sits behind it is exactly the same as in a traditional broker firm.
This is because, while some lenders will share their APIs, most won’t, therefore preventing brokers technology interacting with lenders technology. This in turn means that any automated product recommendation isn’t taking into account all the products in the market – and so, it can’t work.
So this is the reason that Open Banking is going to change everything.
Lenders will be mandated to open-up their technology to the world, meaning these firms will be able to plug in directly and their algorithms will finally have the data they need to run effectively.
And this is just one stage of the process.
Lender systems will be able to interact with each other as well as with brokers – affordability assessments won’t need to rely on a fact find anymore, the system will be able to see a borrower’s current accounts, savings, credit card debts, loans, even their pension.
Confirmed offers could theoretically become instant.
What would happen to the makeup of the mortgage market if, for instance, some of the biggest lenders in the UK chose to develop a platform that could allow borrowers to input their mortgage requirements, agree to share their data securely, search and have the correct mortgage for them pop up on their screen instantly?
Customers know that any lender whose API is plugged into this platform has been included in the search for the right mortgage. And they know they’ll be approved because the affordability has been done already.
The broker USP
This isn’t far off, and it has massive implications for mortgage brokers.
The reason we go to brokers is twofold: choice and advice.
It may be very soon that brokers can no longer claim choice as a unique selling point (USP). That leaves advice.
At the moment, computers can’t tell whether you’re expecting a baby, your marriage is on the rocks or you’re beginning to show symptoms of dementia. These are all things advisers take into account when giving advice, and they matter greatly – not just to borrowers but to lenders too.
Another advantage brokers have is experience. Technology is only as good as the data you put in, and good brokers know which lenders will flex for tricky circumstances, a valuable insight for large swathes of borrowers whose finances aren’t average.
Open Banking is coming, like it or not. To thrive in its brave new world, brokers need to be clear about where their value lies.