New mortgage tech solutions could see increased usage as the UK property market enters partial lockdown.
“I think like any digital business, we’ve seen a lot more interest in what we do and a lot of the mortgage market is still of the view that face to face interactions in conducting a mortgage are really important,” says Seb McDermott, CEO, Koodoo, a digital mortgage platform. “Now that’s not possible, and I think lenders who have got good digital processes are going to be in a strong position,” he says.
“I think something like the coronavirus is just making more stark what was a reality before, which is that we’re now living in a digital world.”
On March 17, Chancellor Rishi Sunak announced a three month mortgage payment holiday for any homeowner whose ability to pay has been affected by coronavirus. The announcement has spurred confusion from homeowners, with many unsure of how to request a payment holiday and whether they should.
As a result Koodoo has launched a mortgage holiday information platform to provide information both to lenders and customers. According to McDermott, Koodoo will double its customer base if all new inquiries as a result of the pandemic become official customers.
“[Lenders] have said the biggest risks for them are that people just think that they can cancel their direct debits … What happens then is obviously you’re in arrears, you’ve missed a payment and that will absolutely shaft your credit score, and it will trigger the credit management processes in the lender. So that was a big risk. They didn’t want people to misinterpret what a payment holiday was and not understand that you had to contact your lender to agree to one.”
Another concern is that people who may not need a payment holiday could prevent those who do need it from getting one, says McDermott.
On March 26 the UK government announced a suspension of property valuations. The move led Lloyds Banking Group and Barclays to temporarily pull many of their mortgages. Nationwide has pulled out of all new deals and announced that they will only offer home loans to those with 25 percent equity or more, the BBC reported.
McDermott says lenders will most likely withhold their riskier loan-to-value products until the lockdown is lifted and valuations can begin again. For specialist lenders the damage is even greater, with lenders such as Precise withdrawing all products from the market.
“There is going to be a massive slowdown in housing activity over the next three months for those reasons. Another thing that is a little bit challenging for a lot of the market is that banks that have deposits will still be able to lend money, but any lender that is reliant on capital markets funding – particularly the specialist lenders – all of that money would have dried up by now, so there’s a big supply problem,” says McDermott.
While the pandemic highlights the importance of digital approaches, it presents a financial hurdle which could curb the technological innovation required by lenders. Lloyds, for example, is delaying a £3bn technology investment program launched last year in response to the outbreak, Reuters reported.
“The difficult thing for a lender is you try to set up these technology investment programs, but the parameters keep on changing and every few years you have another massive issue to deal with whether it’s the financial crisis, or it’s the mortgage market review or it’s unravelling COVID,” says McDermott.