Steve Carruthers reveals the 2022 Mortgage Efficiency Survey results and the key factors affecting and defining efficient lending and servicing.

Every year we interview a range of lenders to find out what’s on their agenda. Every year we hear that the need to digitise systems and processes is high on the priority list. Digital destinations are unerringly common – the journeys to reach them always very different.

But every time we run this research, there are also nuances that change. The regulatory, policy, and economic environment influences where lenders must spend their time – something that has become only too clear over the past few months.

This year’s Iress Mortgage Efficiency Survey (download it free below) shed light not only on lenders’ use of technology to support the origination and writing of mortgage business but also uncovered issues affecting and defining efficient lending and servicing.

Here’s a taste of the major challenges and opportunities lenders see in the coming months.

Speed into and out of the market

While we’re all hoping that the extreme volatility of the past few months will die down now Rishi Sunak is in post, the coming year is going to see interest rates continue to climb to tackle inflation, whoever’s in number 10 and 11.

Lenders now recognise that speed into and out of the market, the ability to scale and the need for robust, agile systems are now paramount.

There’s no telling whether swap rates and market confidence will settle, but the need to reprice products quickly is a certainty.

Following Kwasi Kwarteng’s notorious mini-budget and the consequent impact in the bond markets, funding costs in the money markets soared. Lenders were left very exposed.

The domino effect of those at the top of the best buy tables withdrawing their entire ranges with immediate effect was sobering.

The day after Kwarteng’s unfunded tax-cutting bonanza aired, lenders pulled 935 - the highest daily drop on record, according to Moneyfacts.

Lenders left in the market found themselves flooded with enquiries and panicked applications – processing centres and services collapsed.

With luck, product repricing will be significantly more orderly in 2023, with the Bank of England trailing its intentions for monetary policy well ahead of time.

Nevertheless, lenders now recognise that speed into and out of the market, the ability to scale and the need for robust, agile systems are now paramount.

Credit cycle

The cost-of-living squeeze is already testing parts of the mortgage process that have if truth be told, lain unexamined throughout an era of historic low and static interest rates.

First among many considerations is how lenders deal with a steep rise in the volume of customer calls relating to credit queries, arrears and forbearance.

Employment is the single biggest factor influencing how big that uplift is. Still, even if the jobs market remains stable, energy bills, food inflation and a considerable jump in mortgage payments and rents are inevitably going to take a toll on millions of borrowers.

How lenders deploy technology in this rapidly changing environment is one of the biggest challenges faced across the market.

Building societies

Historically the mutuals sector has struggled to keep pace with the large high street banks when it came to slick customer experience and more streamlined backstage processes. That’s really starting to shift.

Larger societies saw a marked improvement year on year with their application to offer conversion rates, citing improvements in processing efficiencies through better use of technology. Their offer-to-completion rates remaining strong as well.

The advent of new cloud solutions to challenge legacy thinking and systems has meant lenders are in better shape than ever to meet what the market throws at them.

That said, there is still ground to cover. Smaller regionals dropped back slightly across both measures due to increased volumes, lower-quality packaged cases and manual processes. But across the piece, the advent of new cloud solutions to challenge legacy thinking and systems has meant lenders are in better shape than ever to meet what the market throws at them.

Open banking

Too much data isn’t necessarily helpful. For the second year in a row, lenders’ enthusiasm for Open Banking barely registered.

In an intermediated market – some 88 per cent of business is going through brokers - getting timely consent is incredibly difficult.

There’s also real concern among the lenders we surveyed that Open Banking causes more problems than it can solve. Automated Income Verification, a tool used by some lenders, offers as much insight as many feel they need.

Indeed, one participant in the research for this report said: “I don’t need more reasons to not lend – we are a lender if we don’t do that, we may as well pack up and go home.”

Product transfers in a new economy

Product transfers for consumers and intermediaries have been high on the agenda in all peer groups – albeit some challengers and specialists do not have the market share or age of products to justify online product transfer investment.

In an era when interest rates were not rising, product switches were a relatively easy sell to borrowers – now, the new product rate will invariably be a lot more expensive.

It will be interesting to see if the volume of product transfers persists or if the advice is to shop around. Product transfers were once an easy sell – the new climate may prove that this will not be quite as straightforward.

This article first appeared in Mortgage Introducer.

Mortgage Efficiency Survey 2022

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The past 12 months have brought much change and new challenges for UK mortgage lenders, but the need to process business efficiently has not changed. Using insight from a broad range of lenders, all with different experiences and approaches, the Mortgage Efficiency Survey shows how the industry's thinking and approach have evolved.

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