June 17 – Digital innovation through the lens of technology

BY IN Article On 21st June 2017

Innovation in the mortgage market has been a key focus in the past 12 months with emerging firms issuing glossy PR and the FCA opening up its regulatory sandbox for risk free advice. In addition it is clear that the Mortgage Competition Review will look to see if digital can deliver better informed consumers.  There has been very little product innovation in the last decade as regulatory change has consumed most IT development budgets.  However in the last few months we have seen change in the distribution landscape with several new advisers launching on the premise they offer online mortgage advice.  There has also been much support both financially and from the regulator to those developing new and innovative ways to distribute and provide mortgages.  It should however be noted that this is effectively funded by existing firms to support competition that may take the bread from their table.  In such practices the FCA must be very careful not to unduly influence competition in the market.

While AMI is supportive of innovation in all markets and in the way advice can be accessed, we are concerned that there may be an unconscious bias building towards newer firms that market themselves as ‘online’ when in fact they may not be providing the full service that customers or lenders believe them to be.  Embellished price comparison sites that still require discussions with a broker or effectively sit on the boundaries of non-advised are not the “robo-advice” panaceas that some of the PR messages are selling.

AMI is concerned that the regulatory sandbox environment, in its desire to support innovation, may be unconsciously condoning less onerous compliance standards than those required from established firms.  If an unfair bias is being constructed for newer firms, AMI would like to see this appropriately addressed by the regulator.

Another area to be wary of is the concept of propensity models.  Whilst these may be useful in some markets, the case in mortgages is less convincing.  An applicant may have a 90% likelihood of getting a particular mortgage at say 1.99%, but only a 65% likelihood of getting the mortgage from another provider at 1.69%.  If consumers are swayed by the probability of success and not the rate, the majority could end up with a more expensive product than they should.

However developments in the market are to be welcomed – anything that improves customer knowledge and understanding when applying for a mortgage is positive.  But we know that customers seek ease of access and behaviourally, are unlikely to shop around if they are presented with a variety of options – even where those options may not be the most appropriate for their circumstances.  Clarity on where firms have restricted scope, constrained product offerings and are only looking at monthly price must be effectively signposted.  AMI is supportive of innovation but mindful that any behaviour to restrict distribution under the guise of offering choice through technology may be anti-competitive.

There is one further concern: lender criteria are binary when fed through technology; underwriting and decision-making is subjective. Even with partial online fact-finds to inform product filtering, individual lenders’ underwriting approaches and propensity to flex criteria marginally where a case merits it cannot be incorporated into this process. Borrowers rely on brokers’ personal knowledge of lender appetite and how this flexes depending on time of year, lending appetite and case performance history of the introducer.

Robert Sinclair
Jun 17


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