Economic trends are more profoundly amplified through the housing market than any other area of consumer financial services. Incumbent banks face a confluence of economic challenges that encourage digitisation.
Leading macroeconomic themes in digital mortgages
Listed below are the leading macroeconomic themes in digital mortgages, as identified by GlobalData.
Need to protect revenue
Mortgages are the primary revenue-earning product and the anchor of the customer relationship. Not just because of the long term attached to mortgages, but because the heightened emotional state of customers mid-house purchase is a unique opportunity to forge deep connections, establish “trusted adviser” status, and monetise that through ancillary product sales. The opposite is also true: inflict real consumer pain through long, drawn-out processes, a lack of transparency, and hidden fees and the relationship will be forever tainted.
Need to reduce costs
Incumbent bank cost/income ratios are unsustainably high. Cost per mortgage specifically is increasing, more than doubling from $3,000 to $7,000 over 2008–16 according to the US’s Mortgage Bankers Association. New entrants like Lenda and Atom are able to pass cost savings on to customers in the form of lower rates and fees. In Norway, incumbent banks like DNB have managed to increase mortgage share 5% year on year despite closing 50% of their branches in 2016 (and up to 70% by 2017).
Low interest rates may be fuelling mortgage market growth in many countries, but they are also compressing margins. In markets like Australia, Europe, and the US net interest margins have fallen steadily in recent years.
In the US, the top 20 originators had an 87% market share in 2010. This had fallen to 53% in 2018. The top five US banks, among them Wells Fargo and JPMorgan Chase, have seen their combined market share drop from 50% in 2011 to just 21% in 2018.
Increased external/ venture capital funding
Cynical venture capital funding has poured into real estate tech in recent years, with more than $6bn invested in 2017 alone. The year 2018 saw much of that focused specifically on mortgage tech, with firms such as Roostify and Notarise receiving big injections in the US. In Europe, the search for higher mortgage returns is driving financing for marketplaces and online brokers. In Holland, funds known as regiepartijen have enabled institutional investors to originate mortgages through funds that offer a higher yield than Dutch government bonds. Pension funds and insurance companies already originate 20%+ of loans in that market.
Year-on-year house price growth across the UK in January 2019 was at its slowest in almost six years. Many would-be buyers are holding off, while existing owners are refinancing to lock in the best possible rate. We predict a modest drop in gross mortgage lending over the next two years (see below).
The Bank of England has outlined an extreme “hard Brexit” scenario that would involve spiralling interest rates and house price falls of up to 35% over three years. Non-bank lenders are especially sensitive to potential shocks, as they typically rely on short-term financing. This credit can become expensive or dry up entirely when market conditions worsen.
Latest reports from
Or to search over 50,000 other reports please visitGlobalData Report Store
GlobalData is this website’s parent business intelligence company.