Will new technologies change mortgage lending in the UK? Highlights from a recent survey indicates it is but slowly following the Mortgage Market Review regulation.

Earlier this year, the UK mortgage market saw the culmination of many months of preparation as the new Mortgage Market Review (MMR) rules came into force in April. Against this background of regulatory change, we have carried out our annual Mortgage Efficiency Survey which measures and benchmarks key performance indicators for mortgage lenders. As 2014 marks the third year of the survey, we have also been able to look at developing trends over the three year period.

This year the survey includes ten lenders from across the lending spectrum of high street banks and mutuals to small regional societies and challenger banks. A core group of participants have been in the survey for all three years, providing a consistent benchmark measurement. In all, the participants represent a 66% market share of gross lending equating to just under £120bn of mortgage loans.

Key Trends

The trends highlighted in our survey reflect the mood of cautious optimism in the market, with lending volumes ticking up and buyer confidence strengthening.

There is evidence of some impact of MMR regulation, with time to offer slowing in the majority of cases.

The traditional channels to market of branch, call centre and intermediary have generally held their place, but perhaps surprisingly, consumer self-service through the internet has yet to take off.

Likewise, lender investment in new technologies and in particular mobile access has been deferred, due to MMR readiness taking priority ahead of the 26th April deadline.

Buyer Types

Our survey supports market optimism regarding a trend towards recovery, with maintained growth across the three years in the number of First Time Buyers, now at just under 20%.

At the other end of the buying life cycle, Equity Release has also shown growth, increasing four-fold from a low level to nearly 10% within our mainstream lenders. It continues to grow through specialist lenders, fuelled by baby boomers accessing their equity not only to fund their lifestyles in today’s lengthier retirement years, but also as ‘the bank of Mum and Dad’ to help their children onto the housing ladder. It will be interesting to see how this market evolves in future years as the 2014 Budget changes to pensions open up a new range of options for those entering retirement.

Time to offer

Time to offer represents a key measure for lenders and consumers alike. For lenders, it provides a performance indicator of the efficiency of their lending process; for the customer, waiting for a mortgage offer at what is widely recognised as one of the most stressful times of life, it will be how a lender’s service is judged – and remembered.

Interestingly, across the three years of our survey, the percentage of cases going to offer has declined in all four bands.

The average for 10 days and under has dropped from a high of 52%, to just 23% this year.

MMR changes and the need for more stringent affordability and plausibility tests are the most likely factors behind the decline. However, bucking this trend, some lenders have improved, with one lender issuing 65% of offers in ten days or less.

Distribution

One constant in the survey has been distribution through intermediaries, which continues to play a key role in the mortgage market, with an average of just over 56% of mortgages sold through intermediaries.

It is the mainstay distribution channel for regional building societies and small challenger banks, for some lenders accounting for nearly 90% of their sales.

MMR has probably had an impact on the amount of lending introduced by intermediaries as most sales are now advised and not all lenders have enough qualified staff in place.

Early MMR impact

To comply with MMR lenders have had to make system and process changes. For many though, the significant change has been the move from non-advised to advised sales. The challenge has been getting enough staff trained to provide advice at point of sale either in the branch or the call centre.

As we have seen in the media applicants have struggled to get appointments to see an adviser and the sales interview time has increased by perhaps a factor of two.

Although not part of the current survey, we have conducted research that has found that the average advised sale has an elapsed time of 2 hours and 40 minutes, the best 2 hours and the worst taking well over 3 hours.

2015

In the 2015 survey, it will be interesting to see the impact of the first full year of the Mortgage Market Review. For example, will time to offer reduce as systems and processes bed in?

In technology terms how will lenders leverage investing in smartphone and tablet offerings and can social media be more than an alert system?

In 2015, we will be introducing questions on the EU Mortgage Credit Directive and its likely impact and will start to measure advised sales timings on an ongoing basis.

The survey will continue to provide insight to the mortgage market and enable lenders focus on highlighted weaknesses and opportunities. Lenders can then decide where best to invest time and resources to continue to improve the end service to the mortgage applicant.