Guest blog: Can a square peg ever fit a round hole?

Guest blog by Steve Carruthers, Business Development Director, Iress, Mortgages

Guest blog by Steve Carruthers, Business Development Director, Iress, Mortgages

The short answer is yes! But maybe it’s not the peg that’s the problem.

The term 'to fit a square peg in a round hole' is frequently used to describe a person or persons who in some way don’t fit the norm, the usual, the status quo. The interpretation comes from an early 19th-century philosophical paper (“On the Conduct of the Understanding" by Sydney Smith) that considered people and their situations as a wide range of shapes - including triangles and oblongs, and noted there was seldom a perfect fit.

Typically we tend to avoid putting square peg people into round hole roles, and a lot of the ways lenders underwrite mortgage applications sustain and perpetuate this approach.

However, a Dutch building method used for joining major pieces of structural timber involved creating round holes into which square pegs were driven.  The corners of the pegs flattened and rounded against the holes, and the holes became a curvy square shape. Ultimately, there was a very good fit and a very firm joint.

This approach demonstrates that through a combination of lateral thinking and innovation, ideas and solutions from one field or discipline could be applied and incorporated into a different one.  This truly is the stuff of creativity and innovation - combining ideas that don't apparently have any connection. It may seem to be a risk, but there may be a greater risk in sticking to the safe and known. In a rapidly changing world, this could give a lender the competitive edge.

In a constantly evolving market, catering for mortgage borrowers with complex situations - square peg scenarios - offers lenders challenges as well as opportunities.

Risk based pricing as a concept has been much discussed over the last couple of years in the mortgage market, in particular when it might take hold in the market.

But it has already gone from theory to reality and we are seeing it enable lenders to think outside the box when faced with applications where borrowers don’t tick all the boxes or conform to the ‘vanilla’ process journey. 

Most importantly, it works in conjunction with a lender’s decision engine to restrict product availability to specific propositions for different borrower risk profiles and allows for new product exclusive propositions to be launched quickly without the need to write code.

The capability enables lenders to define any number of borrower risk profiles e.g. adverse credit, high loan to income, low credit score etc., and to control which underwriting teams work which risk profiles depending on staff competencies.

The number of square pegs in the UK is only set to increase. According to research from the University of Hertfordshire, for example, 5 million UK adults work in gig economy jobs at least once a week.

The IPSE estimates there are 19 million freelancers in the UK and that the solo self-employed workforce contributes £278bn to the UK economy. Indeed, the rise of hybrid and remote working means more people are finding their way to becoming square pegs as far as a mortgage application is concerned.

While it may be some time before complex situations become the norm, Iress clients such as Leeds Building Society and Yorkshire Building Society have already deployed the capability as a way to tap into the enormous potential this subset of the market has.

And it’s an often seen problem in financial services that instead of evolving with changing customer needs, we tend to try and shoehorn them into current business operations. As the statistician Nate Silver said, “when we can’t fit a square peg into a round hole, we’ll usually blame the peg.”

Find out more:

If you'd like to find out more about risk based pricing and how it could work for your building society, click here.

 

You may also be interested in...

BSA Card
  • BSA.PressRelease Press Release
  • Mortgages & Housing

Building society sector grows as two banks are mutualised

Building societies and mutual-owned banks remain the driving force in the mortgage market whilst continuing to offer competitive savings rates.

BSA Card
  • BSA.PressRelease Press Release
  • Mortgages & Housing

Disappointment for first-time buyers as Bank Rate remains at 4.25%

BSA comments on the MPC's decision to hold the Bank Rate at 4.25%

BSA Card
  • BSA.Event Event
  • Financial Crime

Financial crime prevention seminar

This full-day event in Leeds provides BSA members with expert briefings on current key risk areas in financial crime to help them review and focus the...

BSA Card
  • BSA.PressRelease Press Release
  • Mortgages & Housing

BSA welcomes changes that help to level the playing field between building societies and banks

The Building Societies Act 1986 (Amendment Bill) successfully passed its legislative stages as part of wash up today.

BSA Card
  • BSA.PressRelease Press Release

With a third of people relying on their savings to get by, UK Savings Week aims to help those who can get into a better savings habit

The inaugural UK Savings Week runs 26 September to 2 October 2022

BSA Card
  • BSA.PressRelease Press Release

The beauty of simplicity in a complex world

Speaking on the first day of the Building Societies 2023 Annual Conference at the ACC in Liverpool, BSA Chief Executive, Robin Fieth, talked about the...

BSA Card
  • BSA.PressRelease Press Release
  • People

Debbie Enever to join the Building Societies Association as Head of External Affairs

Debbie will join the organisation on 1 September 2023. 

BSA Card
  • BSA.PressRelease Press Release
  • Thought leadership

A partnership to put mutual and co-operative businesses at the centre of the new Government's plans for growth

Mutual trade bodies Co-operatives UK, The Association of Financial Mutuals, the Building Societies Association and ABCUL, have written to Sir Keir Sta...

BSA Card
  • BSA.Event Event
  • People

Women's Leadership Programme - "The Becoming Journey®"

Taking place between 12 Sept. - 3 Dec. 2025