Ishaan Malhi is chief executive and founder of Trussle
The mortgage sector has been slow to take up new technology, but many now believe it will soon be facing its own ‘Uber moment’. New technology is already helping brokers to improve the way they interact with customers and lenders, and some are applying an algorithmic approach to make the process of finding and securing mortgages quicker, more efficient, and more accurate for borrowers.
While innovation is making this new world possible, major societal shifts, such as the rise in self-employment, are also causing the change, by forcing lenders to offer more flexible products for example. These changes offer great opportunity for those willing to adapt and innovate, but the largest opportunity still lies with the vastly untapped remortgage market. By our calculations, this market could grow to support two million remortgages annually. By harnessing technology, we think the industry could achieve this capacity in the next five years.
According to CACI, around three million of the 11 million mortgage holders in the UK are currently on a standard variable rate (SVR), which means they’re likely paying over the odds and should be looking to remortgage to a better deal. Our research found that homeowners on the average SVR are paying £3,500 a year above the most favourable fixed rate on the market. We’ve calculated that if all of these borrowers switched to a better deal at the appropriate time, it would result in a staggering two million extra remortgage transactions each year.
To put this into perspective, brokers currently arrange 847,000 mortgages each year (around 70% of mortgage transactions in the UK). This consists of around 542,000 new mortgages and 305,000 remortgages. Unlocking the full potential of the remortgage market could therefore produce more than four times the current level of annual transactions. So why is this not already a major focus for the sector, and why are so many borrowers not being more proactive in switching to a better deal?
In our experience, many homeowners are gripped by inertia when it comes to dealing with their mortgage. The research we conducted with YouGov found that just a quarter of borrowers had ever switched deal in search of a better rate. This inaction is often a result of people associating their mortgage with the stress they previously suffered obtaining it – one in five people in the study have never attempted to switch because they think it would be too much hassle.
We’ve seen major emphasis placed on switching energy supplier – growing the market to three million switches in 2016 – despite much lower potential savings for the customer (£200 per year vs £3,500 switching an SVR mortgage). If we can adopt this approach in our own sector then we’ll be able to save UK borrowers billions of pounds every year.
Our goal as an industry should be to remove the existing complexity and hassle from getting a new mortgage. At Trussle, this has been our priority for two years and the feedback that we’ve had from customers shows that it’s possible to completely change people’s attitudes to mortgages.
Brokers and lenders will need to innovate to keep up with the changing expectations of homeowners. If they do, we could see the emergence of a two-million strong remortgage market, billions being saved by homeowners across the UK, and one of the biggest consumer success stories in home finance.