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Made-to-measure mortgages are future of lending – Blackwell

by: Lynda Blackwell, consultant at Thistle Dhu
  • 23/03/2020
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What will the mortgage market in 2030 look like?

 

That’s a difficult question to answer but one that we grappled with at a recent roundtable hosted by financial communications consultancy MRM.

Despite difficulty in predictions, it is not impossible to imagine how technology will change the mortgage market in the coming decade.

You just need to look at the way the world has been reshaped around us by the likes of Google, Amazon, ApplePay, Uber, Airbnb, Revolut – the bar has been well and truly raised when it comes to customer expectations.

But for me, the real change to come is not using technology to make getting a mortgage quicker and easier.

 

The power of data and analytics

The revolutionary change will come from harnessing the power of data and analytics. By looking at patterns to make predictions.

There is data recorded on almost every action we take every day. It is a rich data trail that can be harvested and used to build a granular profile of a customer.

That, when combined with that customer’s financial transactions data, can provide valuable insight into that customer’s needs and circumstances, as well as vastly improved decision-making around the products that will meet those needs.

 

Made-to-measure mortgages

In today’s mortgage market, customers are matched to a product – or not at all if they fail the credit score. But that’s set to change.

Within a decade, I expect lenders with deep data sets will be offering bespoke loans to their customers based on that customer’s specific needs and circumstances.

The rate, the fee, the product features – everything will be unique to that borrower, which is a far cry from where we are today.

The increasing use of data is going to help those customers who might otherwise struggle to access mortgage finance.

In particular, those who today are considered too risky following a lender’s fairly blunt approach to assessing their credit worthiness.

 

De-risking higher risk loans

Since the 2008 financial crisis, loans to borrowers with an impaired credit history have all but disappeared.

In 2007, credit-impaired loans made up around four per cent of all regulated advances, according to data from the Financial Conduct Authority. That figure stands at just 0.63 per cent today.

I have no doubt that predictive analytics will lead to increased appetite among lenders for this type of business. They will have a proper, informed understanding of the risk that the customer poses.

The same will apply to others struggling to get a mortgage, such as young, first-time buyers in the gig economy who today would be considered to have a thin credit file.

 

Boundaries collapse

Industry boundaries will also start to collapse as platforms emerge that, using all of a customer’s data, connect a variety of related services and products to meet the customer’s needs.

A platform catering for the whole end-to-end house-buying process, for example.

Estate agents, valuers, brokers, lenders, conveyancers will all disappear as independent service providers.

And why stop there? We may not have reached this point by 2030, but ultimately, why can’t we expect a platform that looks after all our financial needs, cradle to grave?

A platform that provides an entire lifetime ecosystem built on a data built up from childhood. A proactive, interactive lifetime financial guide and mentor using predictive analytics not only to meet your expectations but to exceed them?

There are some things, of course, we can never predict. But what we can be sure of is that the arrival of Big Data means the sector will look very different at the end of this decade.

 

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