Digitizing Mortgages – An Arduous But A Promising Path Ahead


Home is our safe haven—a place where we unwind after a hectic day at work or an extended business trip. The past 12 months have transformed our homes into offices, schools, and even vacation destinations!

Undoubtedly, becoming a homeowner is a long-standing dream for most of us. This desire for ownership makes us jump through hoops. Lenders cash in on this desire and hassle applicants before they agree to lend money. We have often heard about, and even experienced firsthand, the lack of transparency in the process, the unnecessary and avoidable back and forth between lenders and borrowers, delays due to excessive paper handling and manual decisions, and the never-ending wait for a confirmation. It’s nothing but red tape masquerading as compliance! Not anymore. The year gone by witnessed some major global events. Britain left the EU, and a pandemic forced many people out of their jobs and homes. These changes have forced people to reconsider their priorities and channelize their efforts toward things that really matter.

Mortgages Play a Crucial Role in the Financial Services Market

Mortgages constitute a significant share of the financial services market. In 2018, they accounted for 77% of the total number of loans issued to European households, and the figures have been growing ever since. According to the latest statistics released by the UK FCA & Prudential Regulatory Authority in December 2020, the outstanding value of all residential mortgage loans stood at £1,527.3 billion at the end of Q3 2020, an increase of 2.9% YoY. The value of new mortgage commitments was 6.8% higher compared to 2019; it was at £78.9 billion and the highest since Q3 2007.

Despite being the most common type of collateral used for housing loans, mortgages are subject to strict regulations and bureaucracy even in the age of total digitization and process simplification. However, the development of FinTech has given a boost to the digital transformation of mortgages. FinTech has popularized online mortgage platforms among millennials who want processes, even as complicated as mortgage applications, to be fully automated and online. As a result, around 1 out of 4 households in Europe now has a mortgage loan.

Getting a mortgage is one of the most critical decisions made by a person in their lifetime. Various aspects of lending platforms are considered—security, fraud prevention, and calculations. One of the main goals of a digital mortgage is to enhance customer experience, making the overall process easier and more accessible. Modern mortgage platforms have had to address certain challenges: expediting the entire process and improving customer experience, making the process fully online, and meeting regulatory requirements.

Expediting the Process and Improving Customer Experience

Millennials are driving the shift in customer expectations. Digitization, especially accelerating the mortgage process, has become the focal point for improving customer experience. Mortgage platforms have moved beyond scanned and e-mailed documents and paper forms. New technologies such as RPA, ML, and AI have helped digitize and simplify the mortgage process. The benefits of automating routine and repetitive tasks are easy to define. For instance, a combination of OCR, object recognition, and direct application integration might completely replace manual documents and complaints reviews. Besides reducing processing times significantly, the technology will improve consistency and ensure higher accuracy and better compliance.

Lenders commonly benchmark themselves on ‘time to offer,’ with a few lenders claiming they offer conditional approval in minutes. ‘Time to cash’ is equally, if not more, important. The wait time could be 4–6 weeks in extreme cases. Many downstream activities need to be completed before the funds are disbursed. Lenders who have leveraged technology to streamline these processes have seen applications being fulfilled within 15 days.

Making the Process Fully Online

Recent research shows that brokers dominate re-mortgage transactions; 67% of UK borrowers choose this channel. Many individuals are keen on switching lenders themselves with the same ease they switch their electricity supplier or mobile phone provider.

It’s relatively easy to digitize documentation, but what about KYC and customer identification and verification? Governments across Europe are aggressively promoting digital IDs for KYC and identification. If digital IDs are a must to access government services, why can’t they be used in the mortgage origination process? Open Banking has been evangelized extensively, but are traditional lenders using it to its full potential? Take, for example, a customer who already has their current account with a lender. Income and expenditure can be deduced from their transactions, eliminating the need for physical statements.

Meeting Regulatory Requirements

Mortgages remain one of the most complex, regulated, and bureaucratic industries, and lenders must ensure that every loan is strictly compliant to avoid possible risks. Given that digital transformation poses both real and potential risks to compliance, a key challenge is to strike a balance between the two.

The good news is that many FinTechs focus exclusively on providing compliance at various stages of the origination process, for example, analyzing UK MCOB requirements before submission. In this scenario, lending platforms that leverage Open APIs are best placed to tick all the boxes. Billions have been invested in FinTech. A large part of this investment is intended to impact incumbent banks, as evidenced by the tens of millions of Open Banking API calls now being made, from zero a couple of years ago.

Increased competition puts pressure on margins, and we have seen lenders exiting the market. It’s safe to say that with little to distinguish lenders (only on rates), user experience will be paramount to attracting and retaining customers. The cost of tactical digital solutions is exploding, with billions being spent without addressing the underlying silos, systems, and processes. Lenders need to stop asking customers for information they already have, and they need to use this information smartly. Technology is driving innovation, and innovation is changing customer experience throughout the entire lifecycle.

Views expressed in this article are personal.