Speaking to Mortgage Solutions, the platform provider’s chief revenue officer suggested lenders should not focus on “trying to compete around the margins” and adopt a tailored, personalised pricing approach that “allows real differentiation in terms of properly underwriting or assessing the real risk”. 

He said it would not always be the case that personalised pricing meant lower margins overall, as individual circumstances could result in fluctuating rates across borrowers. 

Little said adopting technology to enable tailored pricing would also allow lenders to “rapidly respond” to market changes and be “always on”. 

“You can underwrite the individual and the property once and give a personalised price today, but you can continually feed those data points back into your servicing platform. You can almost give people an ongoing dynamic price. 

“Sometimes those margins will go up and down,” Little said. 

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He said such technology would not always have to work this way, but could be similar to how a black box is used to determine future car insurance premiums. 

“That could be the same in the mortgage market if you continually get updates from Open Banking, credit reference agencies, a borrower’s scorecard and anything pertaining to their property,” Little added. 

He said this would work differently from sector to sector, adding there was already evidence of this in the equity release market, with real-time pricing based on an individual’s circumstances and lifestyle. 

Little said this also worked in other parts of the market, such as lending to portfolio landlords through limited companies, where the risk was underwritten against the properties rather than just the individual. 

Little said there was a scale when it came to risk-based pricing, where fixed rates were on one end and personalised pricing was on the other. 

“Somewhere in the middle, you’ve got risk-based pricing, where you might look at various parameters and almost build a rate on the fly,” he added. 

He said this could look like adding basis points to a rate when lending to expats, for example. 

 

Held back by technology 

When it comes to standard residential mortgages, Little said it would take a long time to get to a point where it was offered widely because of legacy technology. 

He added: “There are more things available in the market and different plug-ins. People are trying to build more middleware to service these data points; Open Banking is a great example of that.” 

Although there have been many discussions about Open Banking and it was being used in the unsecured credit markets, Little said it had been “very slow to take off” with residential mortgages. 

He said the reliance on a credit file, which could have discrepancies across different credit rating agencies, was “an antiquated way of assessing you as a credit risk”. 

Little added: “Typically, credit files are already out of date by the time they’ve been obtained. It’s usually 4-6 weeks old.” 

Newer lenders are using Open Banking and have overcome the barrier of utilising it through intermediated business, Little said. As that is brought further into mortgage origination, the data available will be more balanced and enable tailored pricing, he added. 

“We’re not there yet, but the technology is there,” Little continued. 

He said Open Banking was probably slow to be adopted because the demographics of people getting onto the housing market were still sceptical about sharing their financial information. 

He also said where a broker was keying information in, there was a disconnect when submitting information to a lender using Open Banking. 

 

Reconfiguring the process 

Little said getting a lender to overhaul their platform and technology using Finova depended on their existing infrastructure and what needed changing. 

He said it was simpler to replace an origination platform than a lender’s back-end servicing technology, and this worked by submitting applications onto a new platform. 

Finova does not always replace a lender’s origination platform, and instead plugs its decision engine Optimo into its existing process, like it did with Legal and General Retail when the lender introduced tailored pricing on lifetime mortgages.

Little said this project took three months to complete. 

Speaking more broadly, Finova has “big plans” for its Optimo platform, Little said. 

He added: “We see a huge opportunity. We think we can correct this with a lot of existing origination providers and lenders to deliver a rapid benefit to the lender. 

“That’s an area where we’re continuing to build out. Whilst it handles dynamic pricing and personalised pricing really well already, we are looking at servicing some of those other data points into Optimo to include property, statistics and things like that to give it a richer decisioning capability.” 

The firm is also looking at new integrations through its origination platform Apprivo and working with Pexa to innovate the conveyancing process. 

Little said Optimo was its flagship offering, not just with pricing but also end-to-end decisioning. 

“We’re really looking to build that out into the market to compete with the likes of LendingMetrics, Prominent and TransUnion,” he added.