This article first appeared online at financialreporter.co.uk.
The mortgage market mania that took place after the Government’s ‘Mini-Budget’ has thankfully begun to settle. But that doesn’t mean we shouldn’t learn from the challenges the industry faced, especially as interest rates continue to rise.
As bond yields and interest rates sky-rocketed post the Mini-Budget, the rush to remortgage and secure favourable rates was considerable for those on variable rates or approaching the end of their deal. Brokers saw first-hand the pressure lenders and law firms were placed under following unprecedented market volatility, and witnessed the considerable impact on the consumer as products were being pulled or repriced on a daily basis.
While we’ve seen some of this strain lift as the market has calmed, it may not last for long. With interest rates still rising and the cost of living continuing to put a squeeze on consumer finances, 2023 is already shaping up to be another bumpy year for the demand from borrowers.
Another bumpy year
As consumers face increasing financial pressure from rising rates compounded with the cost of living taking its toll, there is an increased financial incentive to shop around when remortgaging, and an increased need to be able to move quickly when appropriate products or cheaper rates emerge.
This is an opportunity for brokers to serve borrowers during their time of need – but it also poses a challenge, ensuring both that there is sufficient capacity, and cases can be managed quickly and as efficiently as possible to ensure they are profitable.
And demand is not likely to be steady. We will see peaks of activity. Those who took out a two-year fixed rate mortgage during the 2021 Stamp Duty Holiday will be looking to refinance this year. The industry must therefore ensure its operations are set up for success ahead of the busy months to come.
The argument for streamlined remortgages becomes crystal clear
We believe technological innovation is only sustainable way to meet increasing consumer expectations, and allow brokers to capitalise on and navigate market vagaries. This should start with digitising the post-offer remortgage process.
For mortgage lenders, the adoption of digital remortgages process will reap significant benefits, such as: increased throughput from faster completion; lower employee costs; reduced manual errors; and crucially, a drastic reduction in queries from concerned customers and their brokers. Digital remortgaging will increase certainty in the process resulting in a reduction of frustratingly high dropout rates.
Putting consumer outcomes at the centre of change
We should not seek to reform the market solely to improve the experience and performance of market participants, but to deliver better consumer outcomes and experiences.
Improving the remortgage journey is going to be crucial in a market where interest rates are higher and likely to fluctuate. Financial outcomes for consumers will be significantly impacted by their ability to remortgage quickly. This is going to add significant pressure to the industry to make the remortgage process as frictionless as possible.
Regulatory pressure should support the case for innovation too. The industry is going to be coming to terms with the FCA’s Consumer Duty from 31st July. The regulation introduces an enhanced outcomes-focused approach to consumer protection and sets higher expectations for the standard of care that firms give customers. This is going to add a new impetus for reforming the market at the benefit of the consumer.
Collaboration is key
Brokers, lenders and law firms who move first to digital remortgages will undoubtedly be the first to see continued success and growth, and more importantly, happy and committed customers and clients. For everyone to reap the benefits of digital remortgages and for the industry to be fully transformed there needs to be a much wider uptake of these processes. But cross-industry collaboration is central to any significant steps forwards. PEXA continues to work towards this as we rollout our proposition and new payments system.
The remainder of 2023 may not be smooth sailing for the mortgage market as interest rates rise, but through a collaborative approach, and willingness to embrace innovation, we collectively can make it far less bumpy.