With more than 300 UK branch closures already confirmed by Santander, Lloyds, Halifax, HSBC, NatWest, and Barclays in 2021, online banking and digital mortgage applications are becoming the norm for consumers.
The question NerdWallet asked participants was: “What type of bank loan are you, or would you, be comfortable with applying for online or via an app, without any human interaction or speaking to an adviser?”
Research from NerdWallet revealed that 58 per cent of 25 to 34-year-olds claim they would be comfortable using digital means alone to acquire a mortgage. This rises to two-thirds of 35 to 44-year-olds, the highest of any age group.
This is even more significant when considering that 77 per cent of the UK’s first-time buyer mortgage borrowers are aged between 25 and 44, according to the latest Office for National Statistics (ONS) data, with the average age of a first-time buyer standing at 34 years old.
Over a quarter of those aged 45 to 64, and two in five of those aged 65 and over, said they would be comfortable taking out a mortgage online, showing that it is not just younger adults who are growing in confidence when it comes to using digital mortgage and banking services.
Matt Coulson, director of Heron Financial, said: “Clients are far more willing to ‘self-serve’ as far as providing information and interacting online and are looking for solutions that can be delivered quickly. We still feel that the vast majority of clients value some sort of conversation with an adviser during that process, even if that conversation is a lot shorter or more focused than it would have been in years gone by.
“As an industry we are heading to a hybrid solution where the provision of data and documents is faceless and is done via portals and apps. Ideally there will be a combination of a slick interface for the client and the ability to interact digitally alongside more traditional advice where it really counts.”
Rise of the faceless provider
The research suggests that this is part of a much wider trend, as the ‘digitisation’ of the high street continues and people move increasingly towards online services. Three in five Brits say they would now consider a bank with no physical branches, and 40 per cent feel prepared to have a digital-only bank as their one and only provider. Almost 23 per cent said they would want both a digital and traditional bank with brick-and-mortar branches.
“The shift to digital banking is very apparent and this trend is undeniably a contributing factor in bank branch closures,” said Denise Ko Genovese, a senior personal finance expert at NerdWallet.
“Twenty four hour and remote access, immediate transactions, ongoing budget tracking, and potentially quicker mortgage applications are just a few benefits online banking can provide, but we are in a time of transition and there is clearly still a role for physical branches in the banking landscape.”
With a recent report by the Bank of Scotland suggesting that a significant number of younger adults do not understand how a mortgage works, Genovese believes that online banking could play an important role in improving this situation.
A wake-up call
Broker opinions were mixed on the ramifications on the survey, with some saying that it showed the ongoing technological improvement would change traditional broker models and others saying that broker advice and expertise would always be needed in such a complex transaction.
Siobhan McAleer, managing director of The Mortgage Shop, said that the survey served as a “wake-up call” to brokers as challenger banks would increasingly target first-time buyers and continuing technological improvement would threaten the traditional broker market
She said: “Algorithms with built in AI will continue to develop and systems will become more and more refined and more of a threat to the traditional broker market. This will have immediate impact on the product transfer market. You can be assured that the challenger banks have their focus firmly on the low lying fruit – our first-time buyers.
She added: “There is no doubt that this disruptive technology is here to stay. The unknown is just how quickly it is going to develop, the next 12-18 months will let us know if challenger banks are on the march. This survey is a wake-up call.”
Advice remains essential
He said: “While studies like this are interesting and we should be mindful of changes in customer attitudes, the reality is that they are often unhelpful and the truth is very different. We can see time after time that clients need and value advice from professional mortgage brokers and the stats bear this out.
“This may sound realistic in theory, but as soon as a first-time buyer with a 10 per cent deposit as an example tries this, they soon quickly become uncomfortable before they press the button, or find they are declined with no idea why. Even those who are used to the process, well-informed and on their fifth property transaction still engage with brokers for advice, guidance and service.”
He added: “No one should be encouraged to ever take out the biggest loan they will ever have, where the consequences of getting it wrong are so great, without taking advice. A mortgage should not be commoditised or the role of a broker cheapened. If we are to continue to ensure that borrowers get the right outcomes, are aware of the costs and pitfalls, and adequately protected, then advice from a qualified professional is essential.”