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Digital mortgage lenders need to compete on ‘more than service’ – analysis

  • 23/03/2022
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Digital mortgage lenders need to compete on ‘more than service’ – analysis
A flurry of digital lenders have launched in the mortgage market aiming to shake up the status quo. Taking on the big banks is no easy feat but critics believe there is space for innovation.


Digital buy-to-let lender Molo recently expanded into the residential market following in the steps of Habito and Atom Bank.

And at the end of last year, Starling bought Fleet Mortgages with further moves in the market expected. It’s also anticipated that Monzo could soon start mortgage lending.


Competing on service

These new-breed of lenders are largely focused on using technology to make the customer – and broker – journey simpler and more enjoyable.

Alan Fitzpatrick, VP lending operations at Habito, said: “We found six years ago through our brokerage that mortgages had barely changed in decades. Not much was standardised, nobody was really incentivised to help the next person in the chain.

“In 2018, we got our lending licence from the FCA, and set out to solve the mortgage products themselves, not just the experience around them. We wanted to build something new, and something that allowed for a fully integrated and digital experience – to the benefit of consumers.”

Launching the residential mortgage, Francesca Carlesi, chief executive and co-founder of Molo, said: “The interest and growth we have seen off the back of our buy-to-let product has confirmed our belief that there is a need for a direct, fully digital residential product within the UK market.”

Atom says it is “using technology to create real value for customers and investors. A bank with automation and data at its heart”.

New lenders further have the ability to use lots of data and analytics to create products that are more creative and personalised, according to Maria Harris, director at Digital Cat Consultancy.

She said: “These models will win if the customer experience is right – super quick and super easy – big banks are still struggling with that.”

Brokers who have used these new lenders do appear to be suitably impressed by the experience.

Reflecting on using Digital Mortgages from Atom, Jamie Lennox director of Dimora Mortgages, said: “The application process was slick, and the underwriting was simple with the offer being produced quicker than most high street lenders. So, first impressions have been positive.

He believes there is room for digital lenders to improve the market.

“Service levels should always take pride above everything else. Sadly, since Covid we’ve seen a real mixed bag around this and are currently seeing some high street lenders take up to 14 working days to assess an application for the first time…

“With these new lenders coming to the market with the aim of using tech to their advantage to streamline the process this can only shorten the time it takes for a client to have a mortgage agreed and in doing so reduces stress.”

However, it’s not enough to just focus on service and new lenders need to also compete on criteria and pricing, according to Greg Cunnington, chief operating officer at LDN Finance.

He said: “The fintech lenders tend to over promote their systems and ease of use or speed.

“But, the reality is that the big lenders have been forced to keep up and have all moved forwards in these areas with significant investment and improvement in recent years.

“Overall, the experience is actually very similar, hence why the pricing and criteria are so important.”


Creating new market segments

In part, due to funding models, some of these lenders have come to market offering much longer-term fixes than those generally seen from traditional providers.

Molo and Habito, for example, offer terms of up to 40 years.

Longer-term fixes have been popular in other countries but to date have not taken off in the UK.

Maria Harris said the new lenders in this area are trying to “create a new market segment” rather than competing in the existing arena.

She added: “There’s no reason it shouldn’t work, but they will have to win hearts and minds over.”

Cunnington said that they have not yet seen a large demand for the longer-term fixed rates because they are more expensive than normal five-year fixed rates. “This puts clients off,” he said.

Lennox said it is “exciting” that these lenders are “thinking outside of the box with products” and also highlighted the higher income multiples available with some of the providers.

He added: “These lenders are looking for the niches where the traditional lenders don’t operate which adds great choice for the customer and I hope they continue to expand across this to help even more people get onto the house ladder.”

Habito’s Fitzpatrick said: “We’re not interested in creating carbon copies of low rate, 60 per cent loan to value (LTV) two-year fixed deals – there are hundreds of those out there already, and we don’t believe they serve all homeowners well.

“We have the tools to craft an unlimited array of disruptive products for customers and we have ambitions to address the most significant home-financing issues of our generation.”

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