Is smart social data the answer to the mortgage market problems?
Advisers suffocate under affordability regulations, as financial institutions struggle to keep pace with digital economy.
The Mortgage Market Review puts borrowers through rigorous affordability tests, aimed to disrupt irresponsible lending and high-risk borrowing.
However more than one year on, the review itself has been labelled a disruption by mortgage advisers, who have suffered an insurmountable workload since the regulations came into force.
Advisers are required to ask many more scrutinising questions, and do a lot more preliminary work with the potential borrower.
While the borrower themselves can also expect mortgage interviews to last up to three hours (increasing significantly from just 30 minutes), with 56 per cent of offers taking longer than two weeks to arrive.
The approval process can take up to 40 days, but that is only half the story. The complexity of advising on mortgages is reflected in the shift to intermediated mortgages.
Post the credit crunch more than 50 per cent of mortgages were sold direct by banks and building societies. Now, post-MMR, more than 65 per cent come through mortgage advisers.
Advisers are trapped in back-and-forth bureaucracy while managing the complexities of individual affordability applications and the sheer volume of them.
The MMR is in place to prevent a recurrence of the boom and bust the economy endured in 2007, but advisers are looking to lenders and the FCA for a more streamlined and accurate way of validating mortgage applicants.
As someone who has worked in the financial services industry for many years, validating people’s financial circumstances, I strongly believe that the regulator is missing a trick by ignoring the vast quantities of data collected by social platforms.
‘Smart’ social data could be the golden ticket for advisers and the lending industry, if only the FCA could bring its thinking in line with the digital way we live today.
Around 90 per cent of the world’s data has been created in the past few years, and according to IBM, 2.5bn gigabytes of data was generated every day in 2012.
According to a Bains and Company study of more than 400 large companies, the most advanced analytics capabilities are outperforming competitors by wide margins.
The leaders are: five times as likely to make decisions much faster than market peers; three times as likely to execute decisions as intended; and twice as likely to use data very frequently when making decisions.
If lenders overlaid smart social data analytics with traditional mortgage checks and the new MMR affordability regulations, advisers would have to spend less time making sure the criteria had been accurately fulfilled, while lenders could make better and more informed decisions about the mortgages they approve faster.
Furthermore, implementing holistic social measurements could also serve to prevent mortgage fraud.
‘Gaming’ – where buy-to-let mortgage applications not covered by the affordability criteria are submitted for residential purchases where meeting MMR requirements is necessary – could be simply detected by cross-checking social data.
Yet, banks are still relying on lengthy processes to verify, identity and carry out whole number of checks on mortgage applicants who live in a predominantly online world.
Many financial institutions are struggling to adapt to the digital revolution and advisers bear the brunt of this lack of digital innovation. With advisers suffocating under the new regulations, the FCA must troubleshoot the process and embrace new technologies before advisers and the mortgage market gets stifled.
James Blake is chief executive of social data company Hello Soda.
