With a swathe of fixed-rate loans due to expire by the end of 2023, and borrowers on variable loans keen to find a better deal as rates rise, competition amongst financial institutions will intensify. The pressure on lenders to process loans at speed and take new customers off the market quickly, will also grow.
Financial institutions will need to offer smoother onboarding if they wish to acquire those customers needing to refinance and anyone shopping for a better rate. This starts with the right technology that provides best-in-class digital experiences to reduce friction within the mortgage processing workflow. FIs should consider technology that enables them more control over their mortgage processing business rules and configurations which are an important step for banks hoping to deliver those improved experiences.
Putting yourself in your customers’ shoes
The RBA’s March 2023 bulletin confirmed that 40% of fixed-rate loans that were outstanding in early 2022 would expire by the end of 2023. A further 20% would expire by the end of 2024. This equates to 880,000 loan facilities in 2023 and 450,000 in 2024.
23% of all outstanding mortgage debt is being re-priced to a much higher rate, according to CoreLogic estimates, creating a “fixed-rate cliff”. Average variable rates could increase to around 5.7% for owner-occupiers and over 6.0% for investors.
Meanwhile, the term “home loan hostage” has been coined to describe people who will find it difficult to refinance in the short term; “home loan prisoner” describes those who may never be able to refinance. Financial stress is set to continue well into 2024.
With thousands of customers shopping around for refinancing, many are tapping new lenders. ABS housing loan commitments data for February 2023 shows “borrowers continued to switch lenders for lower interest rates” amid the RBA’s continuing cash rate hikes. The value of owner-occupier housing loan refinances between lenders rose 3.5% for the month. This marked a “new record high of $13.6 billion”.
For customers coming off low fixed-term rates, the future is uncertain. Many don’t trust they’ll be better off when it comes time for a mortgage refinance. Switching home loans is seen as a hassle.
With good reason. Many have had bad experiences with mortgage applications, especially during Covid, when banks took weeks, sometimes months to manually verify customer documentation and approve loans. Mortgage processing hit a major bottleneck. By contrast, banks have acted remarkably quickly to pass on interest rate rises.
Cementing the opportunity
How do financial institutions gain competitive advantage over disruptors, and each other?
The mortgage journey – or mortgage refinance journey - is not just a transactional one, it is an emotional one. For customers, the ideal is a smooth, easy interaction, not a disjointed experience that takes them to another site or requires them to call someone or visit a branch. The process must be digital end-to-end, giving them the instant gratification they increasingly expect of all their service providers, along with ongoing reassurance, transparency, simplicity and speed.
Just as customers expect fast responses, superior UX is essential for bank staff as well. Financial institutions expect complete information being submitted and data verified automatically with back-end business rules and controlled workflows which can significantly reduce the time to ‘yes’.
The origination process should give the ability to pre-authenticate and pre-fill financial and other details for all customers, and verify identities digitally.
Don’t give them the excuse to walk away
If the new customer can get to the point of submitting their application without interruption, having the system capture their data in a seamless and easy interaction, there’s far less chance of them getting frustrated and looking elsewhere.
When customers submit documents to support their application, the bank’s automated document processing should keep them updated on the progress of their validation. These tools save the bank considerable human processing time.
Reusable serviceability and credit decision rules ensure there are no surprises when the application is submitted for processing. After submission, the applicant should have an immediate indication of the result. The customer and the bank are on the same clear journey: staff and customer easily understand whether approval on the mortgage refinance is likely.
The technology platforms that enable this kind of seamless mortgage origination and processing create less work for the bank, reduce processing costs, manual errors and compliance issues. They make a better experience for employees and deliver a far superior onboarding process for the customer.
Self-service rules essential to acquisition
Being able to attract new customers depends on banks being more self-sufficient, gaining control over their business rules and configurations, which in turn gives them control over the customer’s refinance journey. Self-service configuration is a game-changer. It gives banks the ability to add or change rules, and execute those changes in the backend, in real time, with ease.
Whether it’s reflecting a change in a product, a business rule, another interest rate increase – or responding to regulations or lending criteria, the ability to act instantaneously makes an institution more agile, while remaining steadfastly compliant.
Technology, the ultimate differentiator
Harnessing automation, OpenAPI, machine learning and AI, financial institutions can streamline workflows, reduce manual validation and data entry, improve data accuracy and boost operational efficiency.
Integrated solutions that incorporate latest technologies can stop the siloed operating models, fragmented data and disconnects that often exist between different systems and interfaces. Sandstone Technology’s Loan Origination suite is a comprehensive, end-to-end loan origination solution, combining the strengths of LendFast’s automated loan processing, Apply’s online applications and DiVA’s AI-enabled document processing.
Sandstone Technology transforms the mortgage lending process, from the customer’s initial search for lenders and understanding their borrowing power, to the application, pre-approval and settlement. This digital, omni-channel onboarding process ensures a faster speed to decisioning and vastly improved experiences for all parties, front and back.
Attracting – and then locking in - new customers in a competitive environment requires a lending technology solution that can respond quickly and efficiently to new home loan applications. Mortgage automation and bank-in-control are essential in this process.
