Ian McKenna looks at the technological developments within the mortgage market
In many ways technology has transformed the mortgage market in recent years. At the same time, however, the quality and delivery of many lenders' e-commerce services can be described as erratic at best .
While there are lenders who deliver some highly functional services that make the broker's life much easier, this is far from always the case. Even for the market leaders, it is fair to say that what has been delivered only scratches the surface of what is possible and there is certainly a lack of consistency.
The purpose of this new regular column is to examine the strengths and weaknesses of various mortgage technology propositions as well as to identify some ways in which the marketplace could operate more efficiently for the benefit of brokers, their clients and lenders.
Many of the benefits from e-commerce in recent years have been disproportionately distributed. A significant number of lenders will now only accept applications submitted electronically, yet many of the same lenders operate online new business processes that are about as user-friendly as the American immigration service.
The investment market is in the painful process of evolving from large up front commissions towards a lifetime service model built on long-term relationships. Right now the mortgage market lacks most of the infrastructure to make a similar transition possible.
Within both industries, from the provider perspective, one of the main drivers for this is the challenge of poor product persistency. If anything, the problem is far worse in the mortgage market. Consumers have learnt that lender behaviour, for example, the preference given to new borrowers actually encourages customer promiscuity. Currently the retention strategies being put in place by an increasing number of lenders are a valuable step in the right direction but still fall far short of what is needed to build real customer loyalty.
The low-cost model the investment market is trying to adopt is only going to work if an effective e-commerce infrastructure can be put in place to automate the establishment and servicing of investment contracts. The level of work advisers do needs to be commensurate with the remuneration. Consequently the industry is in the process of putting in the support capabilities to enable advisers to work within the more modest recurring incomes that are now replacing large up front commissions. The investment industry is by no means perfect but it is significantly further down the road than the mortgage market.
While many advisers aspire to always contact a client in time to identify a suitable new mortgage product before an old one expires, in reality how many advisers always achieve this? Equally, how often does the expiry of a product result in an unseemly competition between the two parties who originally worked together to get the client on the books, lender and adviser, to see who retains the long term relationship?
Contrary to industry perception, I do not believe consumers want to be constantly changing their lender; they actually have far more interesting things to do with their time. Customers, however, want to be looked after and be confident that they are getting a good long-term deal. Given that for the vast majority of people their home represents their largest financial asset and their mortgage their greatest monthly expenditure the market for ongoing mortgage advice must be huge provided it can be delivered in ways that are cost effective for advisers and affordable for clients.
The UK has the benefit of at least three highly effective digital communications platforms – the internet, mobile phones and digital television. It is almost inconceivable that any mortgage holder will not have access to at least two of the three. Such delivery mechanisms have the potential to enable low-cost, hi-tech advice and enable active remote client management.
Advisers can communicate with borrowers wherever is easiest for the customer, without them necessarily having to incur the expense of using paper or face-to-face advice. Equally, positioned correctly, analysis tools should carry out the necessary number-crunching in a matter of mouse clicks in order to identify the value for money of mortgage arrangements.
If we look at the mobile phone industry there is both a strong retail presence of manufacturers, for example, Vodafone or O2, and distributor partnerships such as those with Phones 4U or Carphone Warehouse. Customers frequently change their handset, equivalent to their mortgage product, but rarely change their network – the equivalent of the actual lender. Equally, where customers do want to change their handset or their contract mid-way through a current offer, they will invariably be offered an upgrade price or new package. Clearly we do not have such a joined up manufacture/distributor model in today's mortgage market but I firmly believe this is achievable.
Building service-led relationships must be central to this and technology is the key. In future columns I will examine some of the practical ways we can make this a reality.
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