Digital mortgage lenders must compete on ‘more than service’ – analysis

A wave of digital lenders have entered the mortgage market in a bid to shake up the status quo. Taking on the big banks is no easy task, but critics believe there is room for innovation.

Buy-to-let digital lender Molo has recently expanded into the residential market, following in the footsteps of Habito and Atom Bank.

And at the end of last year, Starling bought Fleet Mortgages with other expected moves in the market. It is also expected that Monzo may soon start granting mortgages.

Competition on the service

These next-generation lenders are largely focused on using technology to make the customer – and broker – journey simpler and more enjoyable.

Alan Fitzpatrick, vice president of lending operations at Habito, said, “We found out six years ago through our brokerage that mortgages had barely changed in decades. Not much was standardized, no one really had an incentive to help the next person in the chain.

“In 2018 we got our loan license from the FCA and set out to solve the mortgage products themselves, not just the experience around them. We wanted to build something new, and something that enables a fully integrated, digital experience – for the benefit of consumers. »

Launching the residential mortgage, Francesca Carlesi, Managing Director and Co-Founder of Molo, said: “The interest and growth we have seen through our buy-to-let product has confirmed our belief that there is a need for a , fully digital home product in the UK market.

Atom says it “uses technology to create real value for customers and investors. A bank with automation and data at its heart”.

According to Maria Harris, Director of Digital Cat Consultancy, new lenders also have the ability to use extensive data and analytics to create more creative and personalized products.

She said: “These models will win if the customer experience is good – super fast and super easy – big banks still struggle with that.”

Brokers who have used these new lenders seem to be suitably impressed with the experience.

Reflecting on the use of Atom’s digital mortgages, Jamie Lennox, Director of Dimora Mortgages, said: “The application process was smooth and underwriting was simple, with the offer produced faster than most lenders in Street. So the first impressions were positive.

He thinks digital lenders have room to improve the market.

“Service levels should always take precedence over everything else. Unfortunately since Covid we have seen a real mixed bag on this and are currently seeing some high street lenders taking up to 14 working days to assess an application for the first time…

“With these new lenders coming to market in a bid to use technology to their advantage to streamline the process, it can only shorten the time it takes for a customer to get a mortgage and in doing so, reduce the stress. .”

However, focusing on service alone is not enough and new lenders must also compete on criteria and price, according to Greg Cunnington, chief operating officer at LDN Finance.

He said: “Fintech lenders tend to over-promote their systems and how easy they are to use or how fast they are.

“But, the reality is that the major lenders have been forced to keep pace and have all made progress in these areas with significant investment and improvements in recent years.

“Overall, the experience is actually very similar, hence the importance of price and criteria.”

Create new market segments

In part, due to funding models, some of these lenders have entered the market offering much longer-term solutions than those typically offered by traditional providers.

Molo and Habito, for example, offer terms of up to 40 years.

Longer term patches have been popular in other countries, but to date have not taken off in the UK.

Maria Harris said new lenders in this area are trying to “create a new market segment” rather than compete in the existing arena.

She added: “There’s no reason it shouldn’t work, but they’ll have to win hearts and minds.”

Cunnington said they have yet to see strong demand for longer-term fixed rates because they are more expensive than normal five-year fixed rates. “It discourages customers,” he said.

Lennox said it was “exciting” that these lenders were “thinking outside the box with products” and also pointed to the higher revenue multiples available with some of the providers.

He added: “These lenders are looking for niches where traditional lenders don’t operate which adds great choice for the customer and I hope they will continue to grow to help even more people access the house scale.”

Habito’s Fitzpatrick said: “We’re not interested in creating carbon copies of two-year low loan-to-value (LTV) fixed agreements of 60% – there are already hundreds of them, and we don’t think they serve all owners well.

“We have the tools to create an unlimited range of disruptive products for clients, and we have the ambition to solve the biggest real estate finance problems of our generation.”

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