Delivering change will take mortgage industry collaboration, beyond FCA plans
As the Financial Conduct Association looks to help build a stable mortgage market of the future, it has is rolling out new reforms, aimed at digitising the sector. Sam Riordan, executive director for UK banking and payments at Capco, comments on the plans, and their long-term impacts.
The FCA’s proposals mark an important moment for the mortgage market, with the reforms aiming to digitise and innovate to improve customer access, experience, choice and price. While these changes are certainly welcome with an ambitious objective to introduce the first changes by the end of 2026, the reality is that wide ranging impact will take considerable industry collaboration, time and effort. Mortgages remain a fairly painful, slow and manual customer journey even though they are one of the most important products a customer will use in a major life event, and a cornerstone offering for most UK retail banks.
For first time borrowers there needs to be greater consideration for the new generation of multi-income stream customers who earn through online social media activity, small business side hustles and unpredictable incomes from marketplace selling. The market also needs product innovation in regard to pricing in order to assess new types of risk and income multipliers more effectively, as well as the ability to use more sources of deposit and better ways to assess affordability.
In later life lending the challenges are equally complex. Older populations are working for longer and increasingly have a need to borrow beyond retirement, and the industry needs to understand how inheritance interacts with future lending. There must also be more flexibility in how the asset can move to future generations.
The focus on innovation and disclosure rightly centres on open finance. Although it is already starting, it needs an ecosystem data strategy to enable portability across banking, property, tax and income. Making broker technology more standardised will deliver significant benefit because the mortgage market is heavily intermediated and relies on improving lender connectivity to truly unlock value for consumers.
Vulnerability remains a critical area for improvement. Mortgage decisions are based on a point in time review of the applicants, often through a broker, with no real time monitoring or engagement as their lives evolve and change. The industry needs better pathways to identify and support vulnerability throughout the life of the mortgage.
The proposed consultation is welcomed across the sector, with the hope that it will turbocharge the reforms and digital enablers needed to transform one of the most critical financial products in the UK economy.
