Digital lenders are flooding the UK mortgage market

As UK consumers become increasingly open to digital banking services, the range of services offered by digital first banks has expanded to meet this demand. But depending on the products and services offered, traditional banks have not completely lost consumers to disruptive FinTech players, with consumer expectations of neobanks and traditional banks tending to vary depending on their needs.

For example, in a recent PYMNTS study, 21.6% of respondents said they expected cardless withdrawals from a digital bank, while a slightly higher number, 22.1%, expected of a traditional bank.

Get the report: How Consumers Use Digital Banks

But on other features like taking out a loan, expectations diverged widely, with 41.2% of consumers expecting to get financing from a traditional bank, compared to just 28.6% who expected obtain the same financing from the challenger banks.

Overall, the financial service for which the report found the biggest difference in expectations was for mortgages: 34.2% of consumers surveyed expected traditional banks to provide them, while 18.6 % had the same expectation of digital banks.

Although PYMNTS data was collected from US consumers, there is reason to believe that similar differences can be seen in the UK.

The US and UK neobank markets are dominated by a handful of companies that have seen unprecedented user growth, but have struggled at times to monetize their large user bases.

For example, while traditional banks derive much of their income from interest on loan repayments, US-based neobanks like Chime and Varo and Britain’s Revolut and Monzo continue to rely heavily on interchange fees to their income.

The slow, but nonetheless steady, efforts of digital-only banks to enter the lucrative lending market have seen them introduce a range of credit cards, consumer loans and buy now, pay later (BNPL) products in recent years. years. And in the last frontier of the sector, several British neobanks are also vying for a share of the country’s mortgage market.

From digital banks to digital mortgage lenders

Launched in April 2016, the UK’s first branchless bank designed for mobile devices, Atom Bank, included mortgages in its product range from the start.

After Atom, the country’s first all-digital mortgage lender, Molo Finance, arrived on the scene in 2018, offering a range of residential mortgages with a loan-to-value ratio of up to 95% between 15 and 45 years. .

While Atom remains the only neobank in the UK to offer mortgages, it looks like that won’t be the case for long. Last month, British fintech company Perenna announced the closing of a $30 million funding round as part of its plans to launch its own digital mortgage service as soon as its banking infrastructure and licensing issues are ironed out.

Related: UK digital mortgage lender Perenna closes $30m Series A

Popular UK neobank Starling made its foray into the mortgage market in July 2021 with the acquisition of Fleet Mortgages, a buy-to-let specialist that sells mortgages through brokers and intermediaries.

Although there are currently no plans to introduce mortgages under the Starling banner, at the time of the acquisition of Fleet, Starling CEO Anne Boden said it represented “the start of our shift to mortgages. as an asset class.

Read more: Starling Bank buys Fleet Mortgages in $69.1m deal

Nik Storonsky, CEO of the UK’s largest neobank, Revolut, also hinted at interest in mortgages. In April he Told Reuters that home loans were “an important part of consumers’ financial lives” that could be included as part of the bank’s super app ambitions.

See also: Revolut is looking to expand into crypto wallets and mortgages

As neobank products and services become increasingly available in the market, incumbent banks are likely to up their game and offer digital mortgage offerings to compete with emerging FinTech players.

The increasing digitization of the market will inevitably result in a plethora of options for consumers. Online mortgage brokers like Mojo are stepping in to help by providing a platform where UK buyers can compare and apply for mortgages from more than 90 lenders, with around 10,000 mortgage deals on offer between them.

Another online broker, Habito, which launched in 2016 as an end-to-end digital homebuying solution, also helps connect buyers with lenders, and Habito’s attorneys and case managers can also guide homebuyers through the process of mortgage application, construction surveys and transportation.

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New PYMNTS Study: How Consumers Use Digital Banks

A PYMNTS survey of 2,124 US consumers shows that while two-thirds of consumers have used FinTechs for some aspect of banking, only 9.3% call them their primary bank.

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