Interest rates jumped upwards and while the promise of stability lies ahead, nothing is certain. All the while, we’ve seen key processes like the affordability test thrown out.
Nevertheless, when markets are put under such a large amount of pressure, transformation and adaptation for the players within them comes into the spotlight.
Specifically, the differentiating factor we’re witnessing between successful and unsuccessful lenders is allowing for advanced flexibility. Upgrading technology at pace is essential to attaining these levels of flexibility and there are three vital areas where flexibility can be maximised to help assist lenders in coping with current market volatility.
Adapting to repricing
Market conditions have wreaked havoc with interest rates and when it comes to repricing in lending, there are only a handful of moments in recent history that have been as turbulent as today. However, incumbent backend systems amplify the negative effects of volatility, producing an untimely and hindered approach when facing unexpected repricing.
These lagging and clunky processes come down to a reluctance to update legacy systems, sometimes dating back to the 90s. This outdated tech makes offering rates that accurately reflect the fast-paced market far more difficult.
On the other hand, lending institutions with readily integrated, cloud-native backend systems are able to react to shifts in the market much more efficiently, offering updated pricing as the changes occur, as opposed to days later.
In this climate, time is money, so making use of flexible cloud-based technology means that lenders aren’t hindered by the process of withdrawing and repricing, granting them the ability to offer prices in correlation with the market.
Tackling affordability
In this landscape, interest rates aren’t the only element undergoing a shift – factors such as affordability are also facing change. As more onus lands on the lender to determine potential affordability, the sector seems to be becoming more complicated.
What’s more, with the evolving world of work and incomes, and the cost-of-living crisis, establishing a model that suits them becomes a trickier task.
Doing business using incumbent, legacy-laden systems that were designed decades ago renders assessing affordability in an efficient, modern way nearly impossible. It’s not only crucial for lenders to implement data collection and analysis capabilities that are strong enough to assess future customers, but also for these processes to form the building blocks of an assessment model that can be used reliably and consistently.
Boosting innovation
Lenders are also being forced to adapt by the market on a wider scale. For instance, global heatwaves in the summer of this year have highlighted the climate crisis emergency, causing businesses and consumers alike to search for ways to lessen their impact on the environment.
Mortgages and lending are no exception, as we’ve witnessed with the appearance of green mortgages, with research from Leeds Building Society showing that 90 per cent of brokers expect the demand for more eco-friendly mortgages to increase.
Legacy systems, however, slow down the process of implementing new and much-needed products like this, and building new offerings on outdated systems is disorderly and chaotic in comparison to streamlined technology. For these reasons, if lenders are to become institutions of the future, they need to start down the road of updating legacy operations in order to grasp the full ability to scale and adapt their offering through each step of the cycle, including origination and servicing, and all elements in between.
