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Friday, November 22, 2019

Opinion > Masthaven

How can specialist banks continue to embrace difference?

Simon Furnell, chief operating officer at Masthaven | 17:16 Tuesday 22nd October 2019

Everyone’s different — and with big banks not geared up to meet the specialist challenge, the opportunity for smaller lenders is clear. But as the market evolves, how do we keep up?.

The words ‘different’ or ‘atypical’ have gained negative associations in banking in recent years, with some seeking to associate ‘different’ with ‘risky’. But everyone’s different — and that’s no bad thing. 

We all come with unique histories, arrive from our own personal journeys and with our own individual sense of the world. With conventional providers not geared up to serve the needs of atypical customers, specialist lenders have stepped in to support these underserved borrowers and savers.

Whether it’s a credit blip, a complex work history, new or inconsistent income or something else, specialist banks are therefore stepping up to serve the needs of people who’ve been locked out from ‘traditional’ lending avenues — and this is why they are succeeding. The number of customers with specialist or different needs looks likely to grow as the self-employed, part-time and gig economy grows.

But as the market continues to evolve and the market segment becomes more sizeable and attractive, the challenge is for specialist lenders to keep up, spot emerging trends and changing customer need — and offer appropriate support. So what should we be thinking about?

Non-salaried income

In the UK, the traditional nine-to-five office job is rapidly becoming outdated as many individuals are choosing to go it alone and set up their own businesses. The scale of this shift away from traditional employment is considerable: in 2001 there were 3.3 million self-employed people, by 2017 this had increased to 4.8 million, representing over 15% of the UK workforce. 

However, while the self-employed cohort may be thriving professionally, they still face many challenges when it comes to securing a mortgage. With some lenders asking for three years’ worth of accounts, and with affordability models unable to cope with an income that is not salaried, the self-employed do not fit the more computerised assessment models and instead require a degree of human intervention and understanding.

The truth is that many self-employed individuals are financially secure and mature homeowners, with the largest cohort aged between 45 and 54. This fundamental shift in employment norms demands mortgage application processes that accommodate and evolve with the changes seen and ensure an appreciation of the needs of individuals that don’t fit the traditional model. 

Blend technology with human insight

The specialist lending market recognises the vital role technology can play in streamlining savings and mortgage application processes to create a faster and more efficient service for customers. The agile technology used by specialist lenders can also cater for a borrower’s unique circumstances, such as impaired credit and self-employment, enabling these individuals to secure a mortgage.  

But while technology may enhance many elements of the mortgage application process, it can also take the human element out of banking, which can have a knock-on effect on customer loyalty. Finance, in whatever form it takes, is personal. Being digitally focused is a must, but automation and speed will never replace the support and face-to-face interaction customers want. 

The key to success is finding the balance between technology and the human element of any loan application. Masthaven aims to combine specialist underwriting technology with the human touch. By using highly trained mortgage underwriters to read and assess applications on a case-by-case basis, the company is able to avoid credit-scoring and operate a more nuanced criteria policy instead, paving the way for people from all backgrounds and situations to secure a mortgage, often for the first time.  

Retention

Acquiring specialist customers has proved fertile ground for many banks — but it’s keeping those customers over the long term that will prove the bigger challenge. This is particularly challenging in a commoditised market, as repairing credit and a history of successful mortgage servicing can, after two years, bring these borrowers within the scope of bigger banks and cheaper borrowing options. Will service, loyalty or ease of renewal be enough to retain or is rate everything?

Acquisition activity

The big banks are now recognising the fact that many people are being left underserved as a result of having complex situations that do not fit with their approval criteria. As a result, specialist lenders have become a target for acquisition activity, with many larger banks noting the benefits of adopting agile technology and bespoke mortgage application processes. 

Will specialists allow themselves to get gobbled up — or will they continue to go it alone, offering a distinct range and choice that is differentiated from the major players?

Looking to later life

People are living for longer, so specialist lenders are preparing for the evolving later life lending market. How will this develop — and how will an ageing demographic respond to the changes we are seeing across savings, lending and technology?

We are going through a time of great change, and specialist lenders are well placed to meet the changing needs of today’s borrowers and savers. But the key is to look forward, not back, and meet challenges head on.

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