Industry
Banking
Banking Services Transformation: Unlocking Exponential Value
Highlights
- Short-term, fixed-rate products dominate the UK mortgage market. Consequently, borrowers look for better deals when the tenure ends, often reaching out to their existing mortgage provider for product switches, porting, additional finance, or contract restructure.
- The existing mortgage journey, however, is plagued by several challenges, such as repetitive documentation, delays, and lack of flexibility and transparency, making the process much harder than necessary and resulting in significant customer frustration and churn.
- To simplify the existing mortgage journey and improve customer retention, mortgage lenders must adopt AI-driven digitalisation initiatives spanning intuitive digital platforms, underwriting automation, straight-through processing, and real-time monitoring.
Overview
The UK mortgage market is characterised by fixed-rate, short-term products, resulting in customers shopping for better deals at the end of the loan tenure. That said, borrowers often reach out to their existing provider for more affordable lending alternatives and mortgage products, as switching internally is much easier than shifting to a new bank or building society. Such product transfers or further borrowing or remortgage, where borrowers continue with the same mortgage provider, are typically referred to as existing mortgage journeys, and may take the following forms, where customers may opt for:
- Additional advance: Entails borrowing extra on an existing mortgage, often for renovations, debt consolidation, or other financial needs.
- Porting: Involves transferring an existing mortgage to a new property, often with a new loan amount, interest rate, and term.
- Product switch: Entails shifting to a different mortgage product with the same lender, often for better interest rates or to switch from a fixed to a variable rate.
- Contract variation: Includes changing the terms of the mortgage contract, such as altering repayment schedules, removing or adding borrowers, or changing payment dates.
- Transfer of equity: Comprises a change in property ownership, such as adding or removing a partner, gifting equity, or finalising divorce settlements.
These changes can be initiated either by customers or brokers acting for customers. While initiating these changes is less complex than processing new mortgage applications, it still requires underwriting and document processing. Lenders will need to reassess customers’ financial situation and creditworthiness and reevaluate the loan-to-value (LTV) ratio as well as the value of the existing and new property to restructure the mortgage contract. However, making changes to an existing mortgage is currently much harder than it should be—the process is often broken and messy, which makes customers frustrated and unhappy. The challenges include:
- Voluminous paperwork and manual processing: Despite digital advances, many lenders still require manual resubmission of documents (pay slips, bank statements, identification) for product switches, especially when income has changed, or additional borrowing is involved.
- Significant delays and lack of transparency: Borrowers often have to put up with four to eight weeks of delay when the changes required to the existing mortgage are complex. In the absence of clear updates on the status of the application, this causes anxiety and erodes borrowers’ trust in lenders.
- Re-evaluation constraints: Reassessing LTV ratios based on current, often reduced, property valuations can lead to higher interest rates than expected, or a decline in the requested product, even for loyal customers.
- Limited flexibility in porting: Lenders do not guarantee mortgage portability (the transfer of an existing mortgage to a new property). If borrowers move to a cheaper property or their income has dropped, lenders may reject the move or require a new, often costlier, mortgage.
These challenges plague customers when they decide to take advantage of existing mortgage journey options, resulting in a below par experience. For mortgage lenders, mitigating these challenges has become an urgent imperative to retain customers—in our experience, customer retention is significantly cheaper than acquiring new ones; even a marginal 5% increase in retention results in revenue growth of 25-30%.
The fix
How can mortgage lenders ease the process for customers when they reach out for alternative lending schemes or products? AI-driven digitalisation is the answer. Banks and building societies must leverage technology and automation to improve lender processes and infuse transparency. Achieving this will require banks to:
- Establish a user-friendly digital platform for customers to submit applications and supporting documents, reducing manual paperwork and accelerating processing times. Adopting optical character recognition (OCR) technologies can help read and classify documents submitted through digital platforms. Such a platform will infuse flexibility, allowing lenders to quickly adapt to borrowers’ changing requirements in the existing mortgage customer segment.
- Automate underwriting, introducing advanced automated decision-making capabilities to reduce manual underwriting and delays. AI and machine learning (ML) models can rapidly and accurately analyse borrower data and risk factors, increasing approval rates and enabling fair outcomes, while also providing 24/7 customer support.
- Enable real-time monitoring through AI-driven chatbots to help customers and lenders to track application progress in real-time, improving transparency and reducing queries.
- Introduce straight-through processing (STP) by automating workflows; leverage AI and ML tools to integrate with third parties, which will reduce manual interventions for credit assessment and accelerate processing.
- Streamline product switches and advances by offering customers a ‘single-click’ option for rate switching or to borrow more, eliminating the need for resubmission of existing information.
Digitalisation will make the existing mortgage journey process more convenient and transparent as well as enhance efficiency and minimise costs. Automated processes and digital documentation will reduce errors, mitigate the risk of non-compliance, and improve the customer experience. Digitalisation of mortgage processes will enable a faster response to shifting customer demands, driving growth and profitability, and improving the competitive position of banks and building societies.
Putting theory to work
The business case for upgrading mortgage systems and processes in the UK landscape is clear. Let us examine the actions UK mortgage lenders must take to turn the vision of a seamless existing journey into reality, thereby delivering a smooth customer experience and driving retention.
Establish an online digital platform
Mortgage lenders must build a simple digital platform or app with a unique interface for existing borrowers to apply and upload documents. The app or online portal must be easy to navigate, allowing borrowers to choose a specific type of loan, such as opting for porting or availing a further advance. Eliminate the use of paper by leveraging optical character recognition (OCR) technologies to classify documents and populate information in the right fields. These steps will reduce the time required to apply for a loan from days to minutes.
Enable ‘single-click’ product switches
When existing borrowers want a better interest rate or plan to shift to a different product, instead of treating them as fresh applicants, create a separate interface on the portal. This disparate interface must allow borrowers to enter their customer ID, verify and confirm all the existing details, and initiate a rate change or a product switch at the click of a button.
Deploy AI-driven chatbots
Mortgage lenders must deploy AI-backed chatbots that allow borrowers to track the status of their applications in real-time throughout the journey. This will involve setting up an application programming interface (API) framework to connect mortgage lenders’ central database with the digital platform or portal to reflect real-time status and configuring the system to send notifications of changes. In addition, a live dashboard can give borrowers clear, real-time visibility into where their application sits within the mortgage lifecycle. By clearly signaling each stage—such as ‘decision in principle in review’, ‘decision in principle completed’, ‘full mortgage application’, or ‘underwriting in progress’—the dashboard reduces uncertainty and keeps borrowers informed throughout the journey.
Automate underwriting
Automating underwriting workflows will involve configuring system rules to calculate qualified income based on employment type. For each document, validation rules should be in place to verify mandatory fields and ensure consistency—for example, checking if the name of the borrower matches with the employment records. When all the criteria are met, the document is automatically processed; if it fails, it is treated as an exception and flagged for review. In addition, mortgage lenders must automate document checklists by borrower type—for example, requiring pay slips and Form P60 for salaried individuals and SA 100 for self-employed customers.
Enable safe STP
Enabling STP in underwriting workflows will entail defining rules to auto-approve or auto-reject and route exceptions for manual review. Event-driven orchestration must be implemented to automatically trigger identity, fraud, credit, and affordability checks. In addition, underwriting systems must integrate with credit bureaus and valuators via APIs to access credit scores and valuation reports—OCR can be used to instantly extract key data points, such as scores and property values. However, they must apply policy-as-code to produce audit-ready decision packs (including AI outputs and overrides) while ensuring security and compliance.
The road ahead
In the UK mortgage sector, digital agility is fast emerging as a crucial differentiator. With customers increasingly expecting a convenient and seamless experience akin to what they have become accustomed to on e-commerce platforms, digital automation is becoming inevitable to stay competitive and retain market primacy. From the perspective of existing mortgage customers, a failure to digitalise will expose incumbents to disruption from new entrants—especially disturbing as fintechs have already begun making inroads with innovative digital mortgage products that offer superior experience—resulting in avoidable customer churn. Swift action is key to gaining an edge—mortgage lenders that embrace digital ways of working will forge ahead of their peers and lead in the intensely competitive UK mortgage market.