In a time of evolving technological developments and customer expectations, many mortgage lenders are struggling to maintain margins due to compliance/regulation costs, low interest rates and emerging competition.

Mortgage lenders are currently seeing a flurry of business with gross mortgage lending rising to £28.2 billion in October 2022, from £23.8 billion in January 2022. While this is good news, some lenders – those who are still using manual processes or systems that do not support automation – are finding it difficult to keep up.

The large volumes of data and documentation involved in the application, approval, risk analysis and underwriting process can be time consuming and inefficient, resulting in slow performance and a poor customer experience.

API-enabled software systems have the potential to unlock previously siloed systems and create automation opportunities within the lending process, as well as new efficiency opportunities and avenues for improved service. These efficiencies can be used to free up valuable resources and facilitate expansion into other sectors of the mortgage market.

Use of APIs in mortgage systems

APIs are a core element of modern software systems, moving data from one system to another instantly. They enable processes to be automated so that data can be accessed and assessed, and the application can move forward without human assistance. This automation is APIs’ key advantage.

Originally used by banks primarily to transmit payments, use of APIs has exploded in recent years, as banks and building societies have moved to catch up with other industries and leverage them to work faster and better.

The use of APIs is growing at a rapid rate, with the latest figures from Lloyds Bank’s Financial Institutions (FI) Sentiment Survey showing that 77% of senior FI decision makers see APIs as a top tech investment priority. This has been accelerated by open banking legislation, under which banks open up their APIs to third parties to create new tools and connections.

Driving value with APIs

APIs have the potential to unblock workflows and streamline every element of the mortgage journey, creating a seamless mortgage experience. Currently, applicants, sales teams, underwriters and risk analysts have to source, share and verify large amounts of documentation to facilitate the mortgage experience. This includes identity verification, due diligence, financial records, legal records and employer verification.

Mortgage teams source this information from clients and move between relevant departments in collaboration to process the application. This usually involves an external broker if the client is using one (80% of UK mortgages are broker lead). Much of this transfer is done manually, creating delays and the potential for human error.

APIs work as data bridges between systems, enabling stakeholders to source, share and analyze data in real time, with minimal human intervention.

  • By moving from paper to digital documentation and data sourcing in ID and credit checks, APIs accelerate the lending process and ensure data is precise and relevant
  • Agile lenders can also use APIs to conduct identity checks and ensure that there are no reasons to deny a mortgage
  • APIs can be used for credit checks, accessing a client’s income and expenditure through current account data and building connections between existing systems and software, to streamline the data journey
  • They now also offer real-time property valuations, which can reduce time-to-offer by days

The advent of 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. Not only will this create new efficiency opportunities – particularly regarding specialist lending – but it can create a collaborative financial ecosystem around mortgage lending that includes other relevant services such as legal, construction or insurance.

Benefits of APIs to mortgage lenders

APIs are a powerful tool for mortgage lenders and enable a variety of benefits. These include:

  • Enabling proactive addressing of systemic issues related to asset quality and risk
  • Enhancing the range of information available for risk, compliance and underwriting teams
  • Ensuring regulatory and compliance requirements are more easily met, and offering the potential to improve consistency of implementation of lending policies
  • Increasing tailoring without additional team or time required – leveraging internal resources
  • Linking back-end to front-end customer experience tools to empower point of sale
  • Workflow automation – reducing errors, staff hours and costs
  • Workflow automation also helps deliver consistent lending policy application and so leads to a situation of “human intervention by exception” in the decision process
  • Providing customers with faster, updated access to statements and loan information, and increasing customer satisfaction

APIs will also have a massive impact post-mortgage offer in the conveyancing part of the mortgage experience – this is where the biggest progress in terms of time reduction could be made.

While many lenders struggle to deliver profitable, efficient mortgage services, APIs are a crucial tool for mortgage lenders keen to stay ahead of the competition and streamline their loan process, while conforming to increasingly complex regulations.

Embracing the open opportunity

Making the most of the API opportunity requires a core banking system that can connect with external data sources. For banks working with legacy lending and origination systems, this requires building an entire and complex API capability to bridge the gap between the old and new worlds. This can be expensive and time consuming, and it still requires case-by-case detailed assessment ahead of complex development.

The alternative is working with the new generation of APIs that are made available in easy-to-understand formats that connect to a range of third parties. Not only does this reduce costs for lenders, but it greatly increases agility due to the larger variety of potential partners, enabling lenders to better adapt to customers’ needs.

The other advantage of this newer API approach is to make core data available to complementary systems, therefore providing a more comprehensive overview of the mortgage case.

This starts by choosing a technology and implementation partner with the most robust platform to lead you through this transformation.

Watch this webinar with CEO of Kensington Mortgages, Mark Arnold, to find out how they leveraged our flexible API-enabled mortgage platform to improve their service offering for specialist mortgage customers.

Also, why not take a look at our Digital Mortgage Platform? Find out how our solution helps banks and building societies deliver best-in-class customer and broker experience.

Chris White

Manager of product management

Sopra Banking Software