Daniel Hegarty - Habito: How tech is taking the misery out of mortgages
The process of buying a home and getting a mortgage remains one of the most difficult rites of passage for most of us. A wall of impenetrable jargon laid over an uncertain and lengthy process leave the average person confused and anxious. Buying a dream home can quickly become a nightmarish experience.
The numbers speak for themselves; almost all (97%) of first-time buyers report that they are worried about purchasing a home. Cost (65%), uncertainty (45%) and being stuck in a chain (34%) act as the chief drivers of this fear. And, 62% of consumers report they have suffered from ‘mortgage-related stress’ - that’s a staggering 5.4 million Brits.
So the problem shows itself to be both acute and ubiquitous. Let’s try and unpack why this has come to be the case.
Buying a dream home can quickly become a nightmarish experience.
Two-year fixed rates, lifetime trackers, APR, SVR, ERCs… the list goes on. The mortgage product landscape has evolved in complexity along with the balance sheets of the lenders who provide them. Layers of prudential regulation and commercial imperatives have evolved a set of products far too broad and nuanced to be navigated by most consumers.
The fact that mortgage consumers are expected to have an informed view on the future Bank of England interest rate when choosing a mortgage is as unfair as it is ridiculous. Most other countries in the world successfully provide long-term fixed rate products to home-buyers that they can take with them when they move without any penalty - why can’t we do the same?
Nothing is worse than not knowing
Every step of the house purchasing journey, which typically takes between 3-5 months from having an offer accepted to moving in, is riven with uncertainty.
To start, first-time buyers will often need to make multiple offers on homes before being accepted (17% of Londoners make more than three offers). Then, once an offer is accepted there is an average wait of around 20 days for the mortgage lender to confirm that they can offer a mortgage on that property.
You then come to the chain. The average home purchase sits in a chain of four other purchases, which frequently causes delays and these chains can break down. On top of this, at any point up to the exchange of contracts and deposit, the seller can choose to pull out and go with a more attractive offer, leaving the buyer high and dry. Finally, 1 in 5 consumers polled in our research said that after all of this, they did not get the best home for their needs.
Buying a property is an important and emotional decision under even the best circumstances, so it is no wonder that this level of uncertainty drives us to distraction.
We pay for our anxiety
All of this anxiety and confusion leads to people failing to engage with their mortgage even though they may be slipping onto very expensive interest rates.
More than half of UK households (55%) could be saving an average of £300 per month by remortgaging. That is £3,500 per year. Or to put it another way, a holiday, a small car or a year’s worth of groceries.
When you add that up across the country, that’s £15.5bn of unnecessary interest being paid by families - a hellish waste of money.
A wall of impenetrable jargon laid over an uncertain and lengthy process leave the average person confused and anxious.
So what can be done?
Some of the recent advances in fintech have made acquiring free, high-quality mortgage advice possible.
Products like Habito and others allow you to understand your options and receive a provisional offer from a lender before you begin making offers on properties. Algorithms which can search the whole market (20,000 products from 90 lenders) in moments, match your exact needs with the best products out there.
Then, rather than taking time to see a broker in person or sneaking off for phone calls while you’re at work, you can talk to your dedicated mortgage broker on live chat, on weeknights or weekends. Live chat also allows you to come back at any time and see your past conversations in black and white, so you know who is doing what and when.
It also mitigates some of the fear everyone has about asking ‘silly’ questions or being judged about their finances - many people feel more confident with the anonymity provided by a computer screen.
Fintechs can, and are, rewriting the way customers are spoken to and creating simpler communications that are easy to understand. With helpful tools, prompts and explainers built into the product, surfacing at the right time, users are clearer about what is being asked of them, when and why - removing some of the unknown and putting some control back into their hands.
We can also increase the frequency of communications - meaning getting back in touch at the right time and reminding homeowner’s to switch, so they don’t slip onto their standard variable rate and end up with a huge hike in their monthly repayments.
Fintech’s pricing transparency (free) gives applicants more confidence that they won’t be left out of pocket. By using tech for sourcing and matching, we can use our experts purely for advice, and by telling customers what we’ll get paid by the bank before they submit, they know what their business is worth to us. For example, because we have the capacity to take more cases, we don’t have to charge a customer £400 a pop (sometimes even more), like a traditional broker, who also gets paid by the bank.
Finally, with an offer from a lender in hand, you’re in a better position to understand what is realistic for you and to signal to sellers and estate agents that you are a serious buyer. If you can reduce the stress levels of getting your mortgage, you’ll be in a better position to withstand the strain of the home-purchasing process.
Adopt a positive frame of mind
As hard as it is, try not to heap stress upon an already difficult process. Deadlines like the end of a rental contract or a school application date can make ratchet up the stakes and result in sub-optimal decision-making. Buying a home is a fundamentally uncertain process, so it is always better to assume it could take six months and be pleasantly surprised rather than the converse.
It all sounds kind of terrible, and it kind of is. But the world of financial services is changing quickly and new financing innovations aimed at precisely this set of issues are not far away.
I discussed this and much more in Episode 322 of Fintech Insider Insights: Are mortgages broken?
Notes on data
The new reality of buying data was conducted by YouGov on behalf of Habito between 2-3 May 2019 with a sample size of 2,031.
Mortgage stress research was conducted by YouGov on behalf of Habito between 1-3 May 2018 with a sample size of 189.