The budget supports today’s lending model, but what about tomorrow?
In my recent comment on Budget Day, I marked the Chancellor as seven out of 10.
Beyond the extension of the leave scheme and more general economic support, the most immediate relief for homebuyers and the real estate industry came in the form of an extension of the stamp duty holiday and its gradual decrease to avoid a cliff in October.
Then there was the announcement of additional help for future home buyers in the form of a government mortgage guarantee for those who borrow 95% up to a value of £ 600,000.
All of this support is welcome, but it has to be seen for what it is, namely support that supports a market that operates largely on a derivative model over fifty years ago, when payslips were. commonplace and that self-employment was largely the preserve of the wealthy.
The coming economic problems mean that people in need of quick and direct loans are more and more “vanilla”.
Vacation earnings, mortgage payment deferrals and the growing number of workers in the “gig economy” mean that the challenges facing lenders are manifold. Product design and the processes that support it must evolve.
Even those organizations that have traditionally championed manual underwriting quietly wonder if this bragging rights measure up to the unknown challenges that lie ahead. In addition, a market that was once theirs is now becoming the preserve of larger lenders who face the same underwriting challenges.
Products must take into account the granular nature of what is happening in the marketplace, but equally granular products require processes and technology to support them. There is little point in having products that respond to new ways of living and working if the fit and rating systems that allow brokers to find and access those products cannot meet the complexity. and the magnitude of demand.
Smart and relevant products must be accessible so that help can be obtained effectively for everyone involved, from the borrower to the broker to the lender.
This way everyone knows where they stand before an application is submitted. This in turn helps the underwriting process which itself must be prepared to deal, on a large scale, with new complexities of employment, work practices and clients’ revenue models in the future.
From internal dependencies between origination and core banking infrastructure, to APIs with distributors and third-party processes, the digital lending ecosystem is all about understanding how an organization’s digital approach supports and interacts with everything in it. ‘surrounds to thrive – and that includes the new types of borrowers the pandemic will generate.
As I said before, success is understanding the complex without complicating it. Technology shouldn’t raise questions, it should help answer them.
It has long been recognized that improving the customer experience, automating the buying process, streamlining affordable underwriting are all goals of lenders, brokers and real estate agents.
The past year injected some urgency into automating and improving processes, but it was all about making current practices more digital.
The months and years to come will be just as much about making better use of technology to support the granularity of understanding needed to create products that meet the needs of future borrowers.
Tim Hague is Managing Partner at Sagis