A labour intensive activity for consumers, brokers and lenders alike, challenges around verification were amplified during lockdown.
Spencer Wyer is VP of products and solutions at Hometrack, part of Zoopla
COVID-19 has proved to be a forcing function for the financial services industry. Driving unpredictable changes in market volumes from lockdown lows through to mortgage payment holidays, and on to stamp duty holiday highs, it has also exerted significant stress on lenders, culminating in delays and exposing weaknesses across the mortgage journey.
Income and expenditure verification is a case in point. A labour intensive activity for consumers, brokers and lenders alike, challenges around verification were amplified during lockdown when the vast majority of the industry was forced to work from home, all the while grappling with an exponential mortgage pipeline. The review and approval of mortgage applications - and specifically the supporting documents - were blighted by a manual and disconnected processes.
Lenders tell us that, on average, 20% to 30% of mortgage applicants have the necessary physical documents available to them to complete a mortgage or remortgage application, leaving a deficit of 70% on the back foot, subject to delays and a time consuming search for supporting information.
While the CRA provides an indication of how an individual from a typical demographic spends their income, this is generalised, and such a broad brush approach can disadvantage many, particularly those whose income is derived from modern means such as the gig economy.
It’s our view that open banking is the solution for this enduring problem, and the key to unblocking the manual challenges that subsume traditional mortgage or remortgage applications. It took some time to establish, but open banking provides a source of all requisite information for an application, in electronic format, from across a consumer’s income and expenditure portfolio.
To that end, we’ve established a new open banking partnership with Moneyhub, which integrates open banking functionality into our customer proposition, offering a holistic view of each applicant across their various bank accounts and we hope this becomes a benchmark for the industry.
Automatically categorising the income and expenditure of each consumer - all in one place, it facilitates a streamlined verification pathway for the broker and lender, with hassle-free transmission between each party throughout our Mortgage Risk Hub. It also puts an end to the groundhog day effect, in which consumers are asked to submit their documents repeatedly at each new stage of the journey.
Streamlining the mortgage journey for consumers, brokers and lenders has proved to be one of the greatest challenges of the modern mortgage market; however, a frictionless future is upon, and application reviews should be automated at least 60% to 70% of the time. Only where there are gaps in an application should the approval process revert to manual processes of old.
The business case for automated income verification (AIV) and open banking for lenders is multifaceted. As well as removing friction from the traditional mortgage journey, it will expedite the time it typically takes to process an application, there is an ultimate cost saving to lenders as a result of the automation, and it will result in more consistent and safe decisioning. After all, consumers deserve to be treated consistently, fairly and equally, particularly in a regulated environment.
We will be discussing the pros and cons of income and expenditure verification with a focus on Open Banking in our next Hometrack webinar. Get in touch to sign up and learn more about streamlining the mortgage journey and how we can try and fix the issues many financial service providers face related to automating income and expenditure verification.