Tandem Bank has asked consumers to help develop its inaugural mortgage product in an effort to help aspiring homeowners get on the property ladder.
According to Tandem’s own research, 30 per cent of all potential first-time buyers lack the credit history to acquire a mortgage in the typical fashion, while one in three buyers had missed out on purchasing a property because their deposit was too small.
Nick Bennett, chief operating officer at Tandem Bank, said he believed the bank could create “innovative solutions” that address these “pain points” involved in the mortgage process.
Tandem plans to get input from aspiring homeowners through a group of consumers, who will be “co-creators”, which will feed into the design phase of the mortgage.
The product is set to be tested on a small group of customers by the end of 2019 before a full UK launch next year.
The digital bank already offers a money management application which includes savings accounts, a cash-back credit card for credit savvy consumers and a ‘credit entry’ card for those new to borrowing funds.
Tandem plans to develop a new method of credit scoring based on a customer’s aggregated financial data, through open banking, to build a more “rounded” picture of how the consumer borrows, spends and saves.
This, according to the challenger bank, would allow Tandem to offer mortgages to consumers who might not have been accepted by other lenders.
Earlier this year (June 27), the Financial Conduct Authority said it was concerned mortgage lenders could over-lend or under-lend due to a lack of substantial credit data and suggested this — combined with ineffective competition between credit agencies and low consumer engagement — could lead to some consumers unable to acquire mortgages or other loans.
Tandem's mortgage would also help those working on a freelance basis or as part of the gig economy — consumers particularly vulnerable to rejection and unfavourable rates as they often lack a clear source of income.
Tandem plans to offer the mortgage product directly to the consumer and through in-house advice.
Mr Bennett said he expected that for particular segments of the market, such as first-time buyers, advice would be “key to ensuring peace of mind”.
Ricky Knox, Tandem Bank co-founder and CEO, added: “The mortgage sector in the UK is primed for a shake-up.
“It’s hard for most people to get on the property ladder and we want to help them embark on that journey with new tech and a customer-first approach to design.”
Products that help those with thin credit files and first-time buyers get on the housing ladder have been on the agenda for a while, with HM Treasury offering £2m in funding for fintechs who are working on rent recognition programmes.
Rent recognition allows borrowers to use their backdated rent payments as proof they could afford mortgage payments.
Just last month, the Treasury said it wanted to push ‘rent recognition’ forward and was keen to work closely with those successful in securing the funds.
Sarah Drakard, adviser at Cruze Financial Solutions, said: “Banking is definitely about to go through a huge change.
“Lots of what we traditionally had was pretty standard banking from the big five banks and people were scared to step away. Now suddenly online banks, algorithms, apps, robo-advice and lifestyle tools could change banking and finance forever.”
Ms Drakard said there were times as a broker where she could see someone could afford something but they didn’t quite fit the rules, and she thought Tandem could work for such borrowers.
She added: “Overall, technology and new ways of underwriting can only be a good thing long term but I’m sure there will be some bumps in the road while it develops.”
Kevin Dunn, director at Furnley House, said: “It’s great to see innovation within the mortgage marketplace, it will be interesting to see how the proposition shapes itself within the coming months and years.
“Although there is quite a healthy market place already for people who may struggle with high street lenders' credit scoring system, this will be a welcome addition to add to the competition and hopefully increase options when it comes to reviewing your mortgage.”
imogen.tew@ft.com
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