Article originally published in The Intermediary November 2023 – page 14
At such a difficult time for the mortgage industry, I’m conscious future-gazing may appear a little out-of-step. People often say that in a crisis the only thing that matters is the next five minutes. If only it were that simple.
Understanding how technology and data will help us through today’s and tomorrow’s market means we can face the future with confidence rather than trepidation. Technology and, as importantly the data that it processes, are key to delivering sustainable operational models that deliver the lending that brokers and their clients demand but crucially also meet the supply side requirements of regulators and policy makers.
From Net Zero to the implementation of Consumer Duty or the impending arrival of Basel 3, the raft of regulatory requirements continues to increase the scrutiny of an organisation’s decision-making and raise the expectations of its behaviour.
As policy makers shape what lenders can and cannot do (as well as the priority of those deliverables) data and technology are increasingly the way in which the industry chooses to deliver its expanding brief. Technology will continue to add efficiency but also provide the means of evidence gathering that the right thing is being done for the right reasons at the right time. Data will be that evidence and act as a key part of building the picture that supports the people making those decisions. The right data are key and understanding what and how we use them is fundamental to long-term successful investment, funding and lending planning.
The goal of achieving net zero remains real even if there has been a temporary hiatus in political will to drive it. While the deadlines to meet net zero milestones move out, tackling the resilience of our housing stock must remain a priority for today. The momentum for ‘going green’ will grow as lenders reap the capital savings that result from a better understanding of their exposures on back books and originations and how well these properties perform. Flood risk, soil shrinkage, extreme heat – these environmental factors all take a toll on British homes – and not all in the same way. Investors and mortgage lenders are acutely aware of the financial implications for asset security and capital value as a result. Political will and economic necessity will drive a granular understanding of property that interoperable data sources and systems will support.
Recording proof that every precaution has been taken to guarantee the greatest possible outcome for a customer is more than just a duty of care. Lenders will need to be able to prove that they can genuinely flex as well as demonstrate that they are willing to do so. In other words, the need for adaptability, agility, and the capacity to expand a process or system will probably be just as pressing when it comes to the operational management of borrowers as it is when the loan is originated. The technological applications and data sources that make this possible are expanding. After the transaction is over, knowing your customer and their asset will remain important in fulfilling Consumer Duty, and data will be crucial in providing that knowledge.
Understanding the asset brings me to the arrival in the summer of 2025 of Basel 3 which heralds more scrutiny and change for lenders. The proposals for lenders are around capital governance and suggest that properties be revalued whenever a borrower has to switch mortgage products. This has clear repercussions for Product Transfers as well as remortgages. How this is achieved is at present unclear but timely, accurate data will play a huge part in the process. Whether ultimately current methodologies and triage systems which comprise a combination of desk-top evaluations, AVMs, or physical inspections continue remains to be seen. Data will play a central role in supporting quick accurate broader assessments of property risk.
The pandemic demonstrated that cloud-based, interoperable solutions were readily available and could also be quickly put into practice. It means not only developing technology and data strategies but also addressing weak spots in the technology supporting operational delivery. Legacy systems are under pressure from data movement. Bandwidth—the amount of a pipe needed to transfer data across the several participants in the value chain—represents a real block. However, there is now more need than ever to access, evaluate, and analyze data.
These are just three examples of how technology, data and people will come together over the coming months and years. Having a clear data and technology strategy around how this is achieved will be fundamental if the lending industry is to thrive.