The race for space becomes the race for rates

The Iress Efficiency Survey, now in its 12th year, seeks to uncover the technology trends that shaped our industry over the last 12 months. It shows how lenders of all sizes are using technology to both adapt to current market conditions and to make sure their businesses are evolving for the future.

The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

This year’s survey saw 36 lenders participate and it’s more important than ever this year as the lending landscape underwent significant shifts, posing new challenges across the value chain.

The survey explores the automation and technological integration in mortgage lenders' processes but it also looks at more macro trends and here, three main themes have emerged:

  • Mortgage affordability takes centre stage: Mortgage affordability became the new battleground for lending, as the Bank of England rate rose relentlessly in an effort to combat a new era of post-pandemic inflation. Lenders faced challenges in launching and withdrawing products frequently to stay perfectly priced and maintain margins, with a renewed focus on addressing risk through affordability considerations.
  • Environmental, Social, and Governance (ESG) considerations: Lenders' thinking and actions were influenced by ESG concerns, particularly the ‘S’ and the ‘G” elements. A clear focus on dealing with distressed borrowers and potentially rising arrears cases was evident.
  • Open Banking's limited impact: Lenders remain hesitant about using Open Banking as a solution to assess income and expenditure. As one lender described “it’s difficult to unsee information that muddies the underwriting water.”

In the last 12 months, mortgage lenders have primarily focused on coping with changes driven by the interest rate climate, resulting in limited process improvements. Lenders have adapted their processes to prioritise affordability and provide quick decisions in an economic climate where securing pricing remains key. The cost-of-living crisis has shifted lenders' focus towards borrower's immediate needs, and there is a consensus that arrears rates may rise in the coming months and years.

Consumer Duty
Lenders are making progress in the Consumer Duty, with milestones such as Fair Value Assessments having already been completed - but many recognise that much work remains in other areas. A number of participant lenders expressed concerns about broker fees, the preparedness of smaller Directly Authorised firms, and networks' ability to enforce best practices.

Systems must be able to change
The increasing scrutiny of the mortgage origination and servicing process means the structure and responsibility for the traditional ways of doing things will likely evolve over time and systems must be able to quickly change and evolve with those needs.

Overall, we found that lenders face changing regulatory demands, including Consumer Duty, The Mortgage Charter, and Environmental, Social, and Governance responsibilities. Consumers and brokers continue to demand a more efficient, more sustainable mortgage sales and origination process and technology will play a pivotal role in meeting these demands.

We’re going to be discussing the survey in more detail on our webinar with UK Finance on 13 September. Register for our webinar.

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