Open Banking can be used to help demonstrate the affordability of a self-employed person more effectively than the current process.
Peter Beaumont (pictured) is deputy chief executive of The Mortgage Lender
This month Open Banking launched. Ok, the launch itself came with more of a whimper than the big bang we were expecting - six of the nine largest current account providers failed to meet the 13January launch deadline.
Nevertheless, now Open Banking is a reality, it’s going to be an interesting period in the mortgage market, especially for borrowers who feel current underwriting practices work against, rather than with them.
Take, for example, self-employed borrowers. We’ve been speaking to them recently to try and understand the barriers they face when applying for a mortgage and their perception of lenders.
Shockingly 71% believe that they are discriminated against when it comes to securing a mortgage because of their employment status. A further 27% have been put off buying a property - they think being their own boss means they won’t qualify for a mortgage.
Their perception of lenders is a growing problem for the housing market, especially when you consider that by 2022 the number of self-employed people in the UK is set to rise to 5.5 million. And 60% of the anticipated growth in self-employment is within the high-skilled and higher-paying sectors.
Currently two-thirds of people in this group believe mortgage lenders have a responsibility to provide a better level of support and understanding to the self-employed, contract workers and business owners.
Over a quarter (26%) of those we asked admitted that they would live in a different house if their income was treated the same as an employed person for mortgage purposes.
And that’s the key, Open Banking can be used to help demonstrate the affordability of a self-employed person more effectively than the current process.
Open Banking is delivered through a standard set of application programme interfaces (APIs). A programming code that enables one technology platform to talk to another.
Lenders’ systems will be able to access the borrowers current account and validate the actual income and expenditure of an applicant seamlessly, rather than solely relying on tax returns or the SA302.
As well as being beneficial for self-employed applicants it also has benefits for lenders. Open Banking, along with other processing integrations, could reduce the application to offer time drastically. That would lead to significant increase in productivity, or a cost reduction in real terms and a better service for borrowers.
Open Banking may be called, the money revolution that hardly anyone knows about, but things are about to change radically now it’s arrived.
It also has the potential to challenge perceptions and drive some borrowers who may feel left out in cold onto and up the property ladder.
