Originally conceived in the mid-1840s, mortgages have been based on the fairly simple premise of securing a loan against the residential property you want to live in and making regular payments over an extended period until you have repaid the loan and interest.

Deregulation widens the market

In the early 2000s, even with demutualisation and deregulation bringing new players into the market offering a wider array of mortgage products, the fundamental product remained the same.

Over the last ten years, the UK mortgage market has been through a number of changes and regulatory requirements. Brands have also been subsumed into larger banking groups, with lenders needing to balance existing legacy systems with new regulatory requirements. This has left little capacity or scope to develop new products.

Mortgage Market Review

The impact of the Mortgage Market Review (MMR) in April 2014 was arguably the biggest change of all.  This required anyone involved in the sale of mortgages to be qualified, and lenders became more reliant on intermediaries to drive business to them.

Following its introduction, brokers needed to compare the thousands of products available from hundreds of lenders. As a result, fintech firms have stepped in using Application Programming Interfaces (APIs) to match customers to eligibility criteria, and Open Banking promises to refine the process further.  We are now seeing the development of digital platforms which state they can speed up the mortgage application process.

What lenders are doing now

Lenders are beginning to use sophisticated affordability algorithms as part of the underwriting process and are moving away from ?wet signatures? to have a fully digital route to complete the house buying process.

Many of the technological solutions being employed are not obvious to the consumer, such as better telephone routing, automated valuations and targeted communications based on improved analytics. These may not seem like big changes, but incremental cost savings like these and improved customer experience are leading to better customer acquisition and retention.

However, there are still some regulatory brakes on progress. The current rules mean lenders? ability to react to consumer demands for information and guidance in a non-advised digital environment (including use of live chat, instant messaging etc) is restricted.  By providing more information to consumers, lenders may fear they have breached the rule about not steering consumers to execution-only. UK Finance has called for a review of the current rulebook to make digital advice a reality for more people.

An area to watch is peer-to-peer lending which is already well-established in the unregulated Buy-to-Let market. Whether it is suitable for residential mortgages is debatable as the platform needs to provide the consumer protections currently provided by an authorised lender.

The Financial Conduct Authority's (FCA) recent interim report on the Mortgage Market Study has said that the regulator is looking to see whether there are opportunities for better technological solutions or any barriers to more effective delivery of information or advice through digital channels. The industry is primed to take on those challenges.