Mortgages are a key part of banks’ and building societies’ service models, making up nearly 80 percent of retail credit and nearly 40 percent of the total credit portfolio in Western European countries.  But profitable mortgage lending remains elusive, given the highly manual processes and customer experience limitations.

While some lenders have had a bumper year for mortgages, they face a rapidly contracting market. As the sector becomes more competitive, banks and building societies must find efficient, customer-focused ways to service demand for new mortgages while also managing their existing book more effectively.

In this customer-led market, digital challengers have an advantage, working with modern, lightweight systems that put experience first. For banks and building societies, open banking can help create a value-driven, profitable lending journey that retains market share and margin.

Open banking and mortgages

Currently, open banking allows lenders to examine a prospect’s current account data. However, the Financial Conduct Authority is pursuing regulation to bring new financial products – such as investments and mortgages – into scope. The current system does not allow complete income assessment, but it does significantly reduce the time required, with reduced data entry and improved accuracy.

Open finance (seen as the next step in open banking), is expected to open up customers’ entire financial footprint to trusted third parties, including mortgages, savings, pensions, insurance and consumer credit data.

Through a combination of legacy systems, competition and poor customer experience, mortgage profitability has remained low. This is exacerbated by the growth in long-term fixed rate mortgages (five years or more), which now account for half of UK new mortgage lending. Open banking can help tackle the key challenges to improve profitability as well as customer experience and retention.

1.     Lending on customer experience

Traditionally, banks have been limited in the experience they can provide to customers due to complex processes and fragmented systems.

The data and improved efficiency of open banking  can drastically improve the customer experience of lending, reducing anxiety and positioning lenders as the most efficient part of the lengthy house-buying process. The potential can be seen in the number of working days between application and lending, which averages 40 days, though top performers can complete the process in just 18.

Opportunities include:

  • Increased transparency
  • Fast process movement
  • Reliability
  • Overall improving “time to mortgage”

2.     Enhanced process efficiency

Lending based on manual processes is slow, inefficient and expensive. As more data becomes available, lenders can use open banking to verify income, speed up identity confirmation and customer onboarding to improve experience and reduce overheads.

This is especially the case with vanilla mortgages, which often have small margins and standardized processes, presenting large lenders and many digital competitors with the best opportunities for open banking.

Open banking can reduce administration costs for each individual loan application by lowering the number of data points that need to be manually evaluated and increasing the number of applications that can be handled by each team member.

3.     Focus on tailored lending

Open banking can enable the majority of vanilla, low-risk mortgages to be automated, freeing up valuable, highly trained staff for more profitable, complex lending cases.

Where more data is required across accounts and incomes, it is currently limited in what it can achieve. The adoption of open finance could be a game changer, and as the range of data points grows, lenders should see more information being shared, resulting in a highly tailored, flexible, customer experience.      

4.     Upselling related services

As open banking moves toward open finance, lenders will have increasing access to a wider pool of financial data and a customer ecosystem of relevant information and service providers. This connected finance journey enables the secure sharing of data through the end-to-end mortgage process, providing value beyond the original loan.

The due diligence and analysis already performed by lenders can be leveraged by other divisions within the organization to simplify their customer experience, using existing financial data and underwriting to offer other services that new home buyers need. This could include:

  • Credit services
  • Financial planning
  • Insurance
  • Advisory services

The open future of mortgages

The increasingly digital mortgage market is changing customer expectations, process benchmarks and lending potential. For incumbent institutions, this can either be a risk, or a chance to evolve.

Open banking will be an essential tool for institutions to leverage the digital financial landscape to streamline processes, manage risk and provide the experience that modern financial consumers expect. However, making the most of this opportunity requires not just the right technology, but the right partners.

Sopra Banking Software is a trusted transformation partner for leading financial institutions all over the world, working together to analyze processes, find opportunities and implement the right technology to help create a competitive advantage and bolster their mortgage lending experience.

Get in touch with a member of our team today to find out how Sopra Banking Software can help you get the most of the open banking future.

Click here to download our white paper on Open banking & mortgages: The next revolution in lending written by Chris White – Manager of product management at Sopra Banking – and Jan van Vonno – Director of research and thought leadership at Tink.

Chris White

Manager of product management

Sopra Banking Software