The mortgage process is perhaps the part of financial services that consumers would most like to see made cheaper and easier through digital disruption, so why has the so-called LendTech sector been so slow to take hold?

“The mortgage industry is the last area of financial services to get the attention it deserves when it comes to adopting cutting-edge technology,” commented Daniel Hegarty, chief executive at Habito, who’s business is one of two startups making waves in the mortgage market.

“It’s not really happened yet, partly because it is difficult, but also it’s not always in the bank’s best interest to help you switch to a cheaper mortgage product, or pay your mortgage off sooner, or properly compare all teaser rates and cash-back deals,” he continued, adding: “We’ve made great strides, but one challenge everyone faces is that there are so many players for just one transaction: banks, lenders, solicitors, estate agents, conveyancers - which slows and adds expense to the home buying journey.”

The other player trying to overcome the traditional lending model’s barriers to entry is Trussle. Vice president of operations Robert Fairfield agreed that it’s a complicated value chain, which is finally in the process of being picked apart and innovated upon.

“Lenders see where this is going, but most are built on legacy systems and desperately need to re-platform,” he explained. “Many of them also make a lot of money on the existing system, so there’s a lot of wait and see, the traditional lenders want to see which platforms win out before making their move.”

Both Habito and Trussle have the advantage of being built from scratch for the specific task of smoothing the lending process.

“The big players can’t operate like that - look what happened when TSB migrated its IT system over one weekend - but that’s not to say they won’t try,” said Hegarty. “When we started, the traditional mortgage broking industry was very sceptical that tech could make much of a difference. Now, the tables across the FinTech landscape have turned and I’m sure the incumbents will start to look at the technology behind their mortgage broking.”

In two and a half years, Habito has grown from six employees to 120 and helped 160,000 homeowners find a mortgage, submitting over £1 billion worth of mortgage applications.

Since 2015, Trussle has also seen rapid growth, confirmed by a £13.6 million funding round led by Goldman Sachs PSI and Propel Venture Partners in May.

There have been other deals done around the fringes. In August, personal finance company Credit Karma acquired Approved, a LendTech startup which streamlines loan processing by facilitating application procedure. In September, residential rent-to-own specialist Unmortgage raised £10 million to help scale the business.

Sonia Sedler, EMEA managing director of process transformation company Sutherland, and a board director of Sutherland Mortgages UK, agreed that there are a lot of exciting technologies and initiatives emerging in this space.

“Now is the time for alliances to be formed and for partners to join in innovation,” she suggested. “The opportunity is there for integrators to pull all of this together and to ensure that the technology advances are regulated, they support the customer experience and they improve costs and processes for lenders.

“Today’s generation of customers is the most empowered in history: current regulation gives them the choice of an open market and more control than ever before over their own data,” Sedler continued. “In 2019, we will see frontrunners emerge in the race to become the most relevant and useful to customers, and they will achieve that with hybrid approaches and strong collaboration.”

Hegarty noted that this year Habito launched on Starling Bank’s marketplace, and in 2019 “we’re focused on forming even deeper integrations with lenders” in order to speed up customer applications.

Fairfield said that Open Banking makes the mortgage process easier for banks and customers, citing new credit scoring tools which can predict better using open data. “Early adopting lenders are being more transparent, but I’d say open market info won’t be a reality until 2020 – next year I think lenders will start to build on data-driven lending,” he stated.

As for regulation, both said the Financial Conduct Authority has general backed the cause, following several scathing reviews of the UK's existing lending market.

“The FCA has been highly supportive of Habito because we’ve demonstrated how the current market is failing consumers and how we are doing things better and for the better,” said Hegarty.

Fairfield echoed this, but added that the regulator has been keen to scrutinise the suitability and approval algorithm they use, along with any automation of the advice process.

“We have human brokers checking our machine learning technology, so the algorithm learns via recommendations, with the eventual goal of having human no longer having to look at the majority of cases,” he explained, adding that as most don’t need much interaction, the easier segments of the market will become automated. “Humans are on hand for the complicated cases and those that need hand holding.”

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