There’s a huge emphasis on proof and justification for the decisions that a business makes, whether this is the advice a broker gives to their client, or a product change that is implemented by a lender. Consumer Duty puts greater emphasis on lenders demonstrating that products have been developed to meet particular customer requirements, rather than a broad brush approach, and this will require data to show rationale.
It’s becoming more challenging for lenders to understand the impact that changes to their products may have on their position in an increasingly complex market, and how this might affect customers. To be able to both understand the impact of a change and to demonstrate a duty of care as required by Consumer Duty will require lenders to completely rethink the way they go about product development.
How tech can improve Consumer Duty outcomes
At MBT, we are currently working closely with a range of lenders to help ensure they are able meet the regulatory and public expectation of delivering mortgage products. This is through MBT Mortgage Sandbox – a predictive mortgage modelling software that empowers lenders to best build, price and deliver improved mortgage propositions.
MBT Sandbox is able to predict volume, measure the impact of changes to rates, fees, criteria and affordability, and provide comparison to competitor products, giving lenders real-time insights that enable them to make quicker decisions. More than this though, it will help lenders to make more data-driven, customer-focused product decisions – this is essential under the new Consumer Duty.
Within the Sandbox, lenders are able to edit over 60 criteria elements including LTV and maximum loan by mortgage type (e.g first-time buyer, interest only or new build) repayment type, term, age, and maximum income etc. Lenders are also able to edit initial and reversion rates, as well as stress rates, to see how pricing impacts elasticity once criteria and affordability are taken into consideration.
Essentially, this gives lenders the ability to take a smarter approach to developing products with specific customer segments in mind and, given that they are more accurately a targeted towards customer types, lenders will be able to more easily demonstrate the approach they have taken and their reasoning why they believe the product will result in a positive customer outcome.
A data-driven approach to Consumer Duty
In an environment where the onus is on the proof of process, a methodical data-driven approach supported by powerful software provides evidence as to why a product may be considered to be more successful and to whom. This is good news for brokers, and ultimately customers, because it will enable lenders to better prioritise and potentially to launch more successful products, that meet the obligations of Consumer Duty demands.
However, Consumer Duty pans out, effectively meeting customer needs will certainly be the core focus for the future of mortgage product development.