Covid: The mother of invention for digital innovation in mortgages

Ahead of his appearance on the mortgage technology discussion at the BSA’s Digital Mutual on the 3rd November, Steve Carruthers, principal consultant at mortgage software provider Iress, spoke to the BSA about the company’s latest Mortgage Efficiency Survey (MES) and why Covid is pushing firms of all sizes to innovate their mortgage processes. 






Ahead of his appearance on the mortgage technology discussion at the BSA’s Digital Mutual on the 3rd November, Steve Carruthers, principal consultant at mortgage software provider Iress, spoke to the BSA about the company’s latest Mortgage Efficiency Survey (MES) and why Covid is pushing firms of all sizes to innovate their mortgage processes. 

Mortgage software provider Iress recently published its 2020 Mortgage Efficiency Survey (MES), an annual report based on interviews with 36 mortgage lenders, which looks to understand how lenders are using technology in the mortgage journey. 

The report is aimed as a snapshot of where the UK mortgage market is in terms of innovation and the key technologies making a difference to the mortgage journey, from the pre-decision in principle (DIP) and affordability stage, right up to the full mortgage offer and completion. 

In this year’s report, Carruthers says the key factor driving change in the systems and processes used by lenders has not been a particular technology like APIs or Open Banking. Instead, the catalyst in 2020 for digital innovation, has been the global pandemic.  

“We started to interview all the lenders right at the moment when they were beginning to deploy people working from home and they were experiencing, on a daily basis, huge impacts to their operational processes and their people,” says Carruthers. 

“For a lot of lenders, it really highlighted frailties and shortcomings in their systems and propositions. It’s meant that they’ve had to make big decisions quickly or bring things forward in their strategy that they hadn’t anticipated they would need to.” 

“The majority of high street lenders, as well as many of the established regional building societies, operate with a large number of legacy systems and connecting all those together is a real challenge behind the scenes,” he says.

Legacy systems and processes

Because of these issues with legacy technology lenders have been unable to rely on true automation for things like furloughed customers or customers who are self-employed where their incomes are being dramatically impacted by the pandemic. 

“That meant and is meaning that lenders are having to do much more manual under-writing - which is arguably the domain of many regional building societies,” he says.  

Part of the problem he says is that while much of the focus on innovation has been at the front end of the mortgage acquisition process in terms of maximising applications, there has been little investment in back-end offer and completion processes and removing printing and rekeying. 

“Even at some of the very largest mortgage lenders, there is still a lot of print and re-keying that goes on,” he says.

In terms of reducing costs and creating efficiency, he argues this model of relying on human intervention rather than some form of digital automation will be increasingly put under pressure. 

“It’s like the end of the Wizard of Oz,” he says. “You pull back the curtain and there is an army of people operating things. Covid has pulled back the curtain on the limitations of that type of model.” 

In the building societies sector, many firms are actively working to upgrade and digitise their systems and processes, taking advantage of new technology to update their systems and processes.

One of these is Darlington Building Society, who will be talking through its vision of upgrading its mortgage sales and originations systems at the BSA's Digital Mutual on 4th November.

Darlington is looking to apply what it calls an assisted decision process, using technology to take the heavy lifting out of the underwriting process whilst empowering their people to make better informed decisions.

The next big thing?

In terms of whether there is a new technology that could make a critical difference to the market, he argues that there isn’t a silver bullet.

“I’ve lost count of the number of times when industry expert predictions, at the end of the year or start of a new year, suggest this is going to be the year when a new technology takes off,” he says. 

He points to APIs as a perfect example of a technology that is an integral part of most consumer markets, but there is still relatively low adoption in the mortgage industry.

“The market has been talking up the impact of APIs for the last 3 to 4 years and that they are going to start making a difference,” he says. “But arguably, they are still in their infancy across the whole of the landscape.”

In terms of why that is still the case, cost and expertise were cited as the biggest barriers.

“Some of the challenges we found when we spoke to lenders for the latest MES research were that lenders understand the benefits that APIs can bring,” he says.  “But not everyone has the expertise within their organisations to develop and create the necessary APIs.

“That comes with a cost as well which is a challenge for lots of lenders.”

Covid customer trends

In terms of mortgage distribution, one of the other insights from the MES research is that lenders are increasingly looking at the consumer self-serve market for distributing mortgages.

The Financial Conduct Authority (FCA) has recently changed its rules to help facilitate execution only mortgage journeys, but using a mortgage advisor remains the preferred route for the majority of consumers.

However Carruthers says again that Covid and the increasing prevalence of technologies like Zoom and FaceTime, is changing customer behaviour.

“There has been quite a lot of research done indicating that older generations would be technophobic, that’s simply not the case,” he says.

“More people are becoming much more comfortable using technology and lenders are increasingly interested in digital journeys and connecting with consumers directly.

The future - data standards

In terms of barriers to innovation in the market, Carruthers says that one of the big overriding challenges is a lack of data standards to allow easy connectivity between lender and third party systems.

“There isn’t a silver bullet as every lender has different risk appetites and asks questions in different ways,” he says.

“But until there are more data standards, the ability for systems to talk to each other effectively and efficiently will be curtailed.” 

The Digital Mutual

To hear Steve talk about the future of mortgage technology on the first day of the BSA’s Digital Mutual conference on the 3rd and 4th of November, book your tickets here.

Joining him on stage will be mortgage industry experts David Copland and Maria Harris, Phil Parker from DPR Group, Joy Abisaab from new mortgage fintech Mast, Brendan Gilmore from BPG Strategy and Lynda Blackwell from Molo Finance.

On day 2 of the conference (4th November) Darlington Building Society will be talking through how it is digitising its mortgage journey and mortgage fintech Koodoo and CRA Credit Kudos will be talking through the opportunities for mortgage lending from Open Banking.

Also on day 2 of the conference Iress’ Paul Cole will be talking about how the Iress Mortgage Sales and Originations software is transforming mortgage lending for building society’s in the UK.