This isn’t necessarily a problem, as the saying goes: ‘if it ain’t broke, don’t fix it’. However, cost of living challenges, lack of affordable housing and the day-to-day pace of our lives means our lifestyles have markedly changed.
Mortgages have not. So, what’s required to solve this issue? It’s still difficult to predict but here are my thoughts on the key battlegrounds and areas ripe for innovation in the mortgage market over the coming five years.
We need to provide customers with an experience
The terms ‘mortgage process’ and ‘customer experience’ don’t always go together. This, we need to change. Products which cater to ‘generation now’ – making the process shorter than the average 40-day term will win out, especially those which reduce the number of times buyers need to provide the same information they’ve already provided.
Slick experiences combined with the correct regulatory framework will help govern who steals a lead on this market. New entrants have a head start in this area as they often don’t have legacy systems and processes to change.
Intergenerational wealth will remain a key lender
The bank of Mum and Dad is responsible for over £6bn of lending per year, making it one of the largest providers in the UK. However, there aren’t really any products on the market which harness its power.
Considering the financial headwinds many are facing, it wouldn’t be a surprise to see this volume increase, and therefore a demand for a simpler transfer of assets. Currently, gifting deposits can often require confirmation after confirmation from providers and lawyers, adding layers of complexity.
So, products that can incorporate holdings more easily – such as guarantor mortgages – might start to grow in popularity as parents look to help their children onto the ladder.
Buy-to-let will be the testing ground for new entrants
Buy-to-let has been a success story of the last two years.
Booming back after the pandemic, rents are up over 10 per cent on last year despite a cost-of-living crisis. With demand still high, the market is an excellent place for new entrants to cut their teeth before moving into broader mortgage lending, which provides the opportunity for increased profitability.
With lower barriers to entry and an easier environment to hone processes and systems, this could be a new breeding pool for market entrants and products.
Rethinking the customer journey
We all agree the mortgage market needs a further shake-up. I don’t mean wholesale revolution here. That would be the ideal, but realistically the customer journey needs to be rethought – especially when applying for a new mortgage and remortgaging, the poor processes are often masked by brokers or operational colleagues.
We need to make some sizeable changes in this arena and deliver better customer outcomes. Market principles that worked 200 years ago still do, to an extent, but with Consumer Duty laws marking a shift towards more customer-centric processes, maybe it’s time to move products that way too. Realistically, we’re moving into a new, high inflationary and interest rate era, which will squeeze renters, buyers, and landlords.
Therefore, mortgage lenders and brokers will need to work with them to help agree the best deals, delivering innovation and support during testing times.
