Iress’ 2023 mortgage efficiency survey, which polled 36 lenders between April and July this year, found that larger building societies, challenger banks and specialist lenders were more likely to receive business from a broker accounting for 93 per cent and 99 per cent of activity respectively.
High street lenders received 85 per cent of business through an intermediary and smaller regional mutuals received 86 per cent.
Iress said the rise in product transfer business had improved lender retention rates which averaged at 61 per cent this year. High street lenders had the highest retention rates at 75 per cent.
The survey also noted a four per cent annual rise in buy-to-let lending across all providers to 29.4 per cent of business.
Application speed and product changes
Building societies, primarily smaller regional ones, took on more high loan to value (LTV) lending over 90 per cent which Iress said reflected their “appetite for complex business” and familiarity with their local markets.
Applications submitted to high street lenders and larger mutuals took around half the time to reach the offer stage compared to smaller regionals, challengers and specialist lenders.
High street lenders were the fastest at 11 days, while challengers and specialist lenders took 29 days to reach the offer stage. All lenders reduced the time to process applications to offer except for larger societies which stayed at 13 days.
High street lenders improved their speed the most, cutting down the time to from the 14 days it took last year to process applications.
The time to receive a decision in principle (DIP) shortened too, with 43 per cent of brokers obtaining one in less than 10 minutes, down from 39 per cent last year. On average, the time to receive a DIP was less than 20 minutes.
When asked how long it would take a broker who was familiar with the process to get an affordability decision from a lender’s calculator, 77 per cent of lenders said less than 10 minutes. Some nine per cent said between 11 to 20 minutes and 14 per cent said more than 20 minutes.
Two thirds of lenders said it took them at least 48 hours to launch mortgage products, while a fifth took 24 to 48 hours. Just three per cent of lenders said they could launch products to market in less than three hours.
Half of the lenders polled scored their process for withdrawing products a four but said the main issues were communicating this to the market and service standards from sourcing systems. Some 80 per cent of lenders said they were able to remove products in less than two days.
Income and affordability
The survey revealed that the focus on rates and criteria had now shifted to affordability being the main driver for applications and new mortgage originations.
Iress said this also “sharpened lenders’ focus on dealing with distressed borrowers” alongside Consumer Duty and the Mortgage Charter.
Just a couple of lenders mentioned a notable rise in arrears, but most did expect to see stress among their books and arrears rates to increase over the next year.
The report said: “Several lenders relayed initial signs of stress, such as requests for alternative payment dates or alterations to the types of payments in place, from direct debit to cheque and mortgage term stretches.”
A few lenders said stress tests should help borrowers cope with higher expenses, but most expected this to have a minimal impact because people had increased their unsecured borrowing levels and debt.
Lack of interest in Open Banking
Iress said based on responses, “none of the lenders [Iress] spoke with have genuinely embraced Open Banking” for borrower income and verification.
It said borrower consent was the main issue as people questioned what problem Open Banking was trying to solve.
Lenders reported looking at other data sources to improve the mortgage process such as connecting to HMRC or using automated valuation models at the DIP stage.
Andrew Simon, CEO, mortgages at Iress, said: “It’s clear that the effects of the pandemic are still being felt, both by borrowers and by lenders.
“Whilst the survey showed significant improvements in mortgage processing technology, perhaps the most significant trend was that of lenders positioning themselves to cope with future affordability issues and increased costs in borrowing.”
Simon added: “With more scrutiny being placed on lenders to ensure fair deals for borrowers, agile and dependable technology is key to meeting these future challenges.”
