AI tools, green loans, and key players transforming mortgage lending
Over the last 18 months the UK mortgage market has faced volatility, seeing a drop in house prices and an overall decline of mortgage approvals compared to previous years. Not only is the UK suffering a cost-of-living crisis, but there is also a 28% decline in gross lending and increased financial pressures faced by borrowers from interest rate hikes. Lenders have remained alert to these pressures, and many are now undertaking large-scale innovation projects across product, data access and digital journeys to deliver improved mortgage experiences to borrowers. Has a long-awaited disruption in the mortgage lending market finally arrived?
Whilst the mortgage market still shows signs of contraction (UK Finance forecasts a further 5% decline in gross lending by the end of 2024), lenders are still looking for growth. Technology and customer satisfaction remain key focuses for improving how people buy houses in the UK mortgage industry. Applying for a mortgage can be as stressful as buying a home, highlighting the need for a smoother process. With technological advancements, lenders are becoming more creative with new products and are beginning to step up the deployment of innovative tools to simplify and streamline mortgage applications. The goal is to make the experience for borrowers as efficient and stress-free as possible. We shine a light on some of those innovations:
AI Tools
According to a recent survey by Shawbrook Bank, 35% of developers are investing in AI technologies, with a further 43% suggesting they plan to invest into AI for design work, customer relationship management, and customer service. In recent months, Artificial intelligence (AI) has been deployed across several use cases by lenders and the broker community, with signs that new capabilities are set to transform the mortgage and financial sectors by providing personalized recommendations tailored to borrowers’ financial profiles.
In the back-office environment, the most appealing uses of AI include enhanced credit assessments, fraud detection, customized loan offerings, property valuations and underwriting data verification. Borrowers are beginning to benefit directly from a more efficient application process, faster decisions, and with the increasing availability of more sophisticated chatbots, round-the-clock customer service.
The growing adoption of AI tools like ChatGPT and Midjourney reflects a shift towards more efficient and customer-centric financial services. However, while AI brings significant benefits, maintaining human oversight ensures that decisions are reliable, ethical, and meet regulatory requirements, safeguarding consumer trust in an increasingly digital landscape.
Green Loans
The UK mortgage market is highly competitive, with over 100 lenders offering around 12,000 different mortgage products. Despite this, innovation has been stagnant since offset mortgages were introduced over 15 years ago, leaving a gap for new ideas to captivate consumers. In parallel, sustainability is gaining increased prominence due to both government regulations and growing public awareness of climate change.
92% of consumers try to live more sustainably, and 70% are willing to pay more for products that are more mindful of the environment, from choosing electric cars to installing solar panels. For lenders, tapping into this trend with sustainability-focused mortgages could be a game-changer. Opportunities like Flood Protection Mortgages, which fund home defenses against floods, illustrate how aligning financial products with sustainability can benefit both customers and lenders, enhancing property value and reducing risk.
However, the uptake of green mortgages remains modest. While it’s likely more will start to offer them in future, the number of high-street lenders that currently offer a green mortgage is small, so far including Nationwide, Barclays, Halifax, HSBC, Kensington Mortgages and Saffron Building Society. Despite a growth in product offerings, they currently represent just 0.4% of total lending, primarily offering small discounts or cashback for energy-efficient homes. The challenge lies in making these products more accessible and impactful, requiring innovative financial solutions to truly reshape the market towards sustainability.
Innovative Players in the Industry
Perenna announced their full banking license late last year and have been busy rolling out their long-term fixed rate mortgages (LTFRM) via the intermediary market. Taking inspiration from the US and European market, Perenna’s unique proposition is created by a funding model that relies on issuing covered bonds to investors seeking long term income. This translates to a fixed rate product range up to 40 years which is designed to provide stability and affordability to a wide range of borrowers, including first-time buyers and retirees, catering to changing life circumstances and market conditions.
Perenna have also teamed up with Octopus Energy and last month announced the launch of the world’s first ‘Zero Bills’ mortgage. The initiative allows energy customers to move into homes that are kitted out with green energy technology, such as heat pumps and solar, with no energy bills for at least ten years – Perenna are offering a rate discount on their new green mortgage product for over 1,000 accredited homes across the UK and the initiative plans to deliver 50,000 ‘Zero Bills’ homes globally by the end of 2025.
Skipton Building Society’s 100% loan-to-value mortgage, known as the Track Record loan, hit the trade press headlines last year and has attracted £91.5 million in applications since its launch a year ago. This product allows borrowing the full property cost on a five-year fixed rate for up to 35 years. Scotland has seen the highest uptake of this product accounting for 15% of applications, while concerns remain about potential negative equity due to rising property prices. Despite some caution, innovations like this and other recent initiatives reflect ongoing efforts to address housing affordability and help more renters achieve homeownership.
Nottingham Building Society recently launched an innovative mortgage solution aimed at foreign nationals working in the UK, addressing their struggle to obtain mortgages due to lack of UK credit history. The new product allows borrowers on Skilled Worker or Health and Social Care Worker visas to secure up to 90% loan-to-value without requiring a minimum residency period, visa duration, or UK credit history, thanks to a partnership with Nova Credit for accessing international credit files. This initiative aims to support the growing number of foreign workers, particularly in healthcare and technology, by providing a more accessible path to homeownership.
Partnering with GDS Link for a Future-Ready Mortgage Industry
GDS Link recognizes the transformative power of technology and innovation in the mortgage industry. Our advanced software solutions and analytics services are designed to help lenders navigate these changes and optimize their operations.
Our AI-driven tools improve credit assessments and loan recommendations, enabling smarter, data-driven decisions that reduce risk, enhance performance, and streamline the mortgage application process. This makes it faster and more transparent, resulting in higher customer satisfaction.
When you partner with GDS Link, you gain a trusted ally in navigating the complexities of the mortgage industry. Contact us today to learn more about how our innovative solutions can benefit your business.
