For many decades the profile of mortgage lending remained largely unchanged. This has rapidly shifted in the past decade however, with notable changes including the lengthening of mortgage terms from 25 years to 35 years and a rise in the number of joint mortgage applications. What is perturbing are reports from brokers that the only way to get the HCA calculator to accept applicants for Help to Buy is by inputting a 35 year term. Computer or human error – who knows?
Household debt is also undergoing significant shifts. The Bank of England has noted that half of all UK households with a mortgage say they have found it easier or cheaper to get a personal loan than to raise further funds through a remortgage, second charge or further advance. Households’ reliance on unsecured credit raises perhaps uncomfortable questions over whether tightening in the mortgage market, where there is underlying security with potential for capital growth and where rates of interest are consequently far lower, has gone too far and is encouraging households to take on debt in other formats.
This picture is further complicated by the growing number of households with expanding student debt – another unsecured form of credit that has no affordability assessment made whatsoever, but which poses an absolute and finite risk to the wider stability of the economy should repayments default.
In mid December the FCA published clarification of the UK’s application of the open banking rules. These force major retail banks and building societies to give authorised third party providers access to customer data should the customer request it. Banks had previously issued warnings to their customers never to share their login information. The FCA has come out guns blazing against this and issued the following statement of clarification:
‘Currently, businesses that provide AIS and PIS often ask you to share your bank security details with them, such as your login and passwords. Under existing data protection law, these businesses must protect your data and PSD2 will require these businesses to put further measures in place to keep your credentials safe and secure. Your banking terms and conditions should not prevent you from sharing your credentials with regulated AIS or PIS providers. Your bank cannot hold you responsible for unauthorised transactions just because you have shared your credentials with regulated AIS and PIS providers’.
‘If you notice a payment out of your account that you did not authorise, you should contact your bank as soon as possible. If you did not authorise it you can claim a refund. You should contact your bank to claim a refund even if you think a PIS was used to make the payment.’
This is good news for those customers who wish to take advantage of all that open banking offers. It raises some trickier questions for banks and mortgage intermediaries however. Online brokers that wish to access customer data through the use of APIs under PSD2, will find this much easier given this gold stamp from the regulator that customers are safe to transact and will be covered if anything goes wrong.
Open banking will enable a technology platform to compare specific mortgage products from across the market, tailored to affordability, on a quickly, accurately and personally underwritten basis. Given that mortgage underwriters should also be able to access a customer’s details from all providers in the market securely and automatically through these APIs, affordability assessments could become far more accurate. How far particular lenders will want to go in accessing all this data remains to be seen as they will be making judgements based on new sets of information with no history cycle to apply criteria. Also there may be data that once they know they cannot “unknow”. This could mean that some cases which might have flown through would now be rejected due to such as gambling or other cashflow data.
Our concerns around this remain unchanged and unaddressed by the regulator. Whether a product recommendation made based on quantitative data alone can be deemed personal and therefore fully regulated advice is still a grey area. Online mortgage brokers can recommend a product based on any – and often limited – information provided by the customer, meaning the recommendation is not necessarily appropriate based on a customer’s full circumstances, which may not include future non-financial plans such as marriage, children or divorce. They continue to call this regulated advice, which AMI considers misleading for customers. We continue to hope that the regulator will provide clarity on this distinction.