The 'Seven Day Rule' in mortgages

“Make the UK a world leader in digital provision – a place where technology ceaselessly transforms the economy, society and government” that’s the government’s ambition with the Digital Economy Bill.

We’ve got the ‘Five Second Rule’ for food, the ‘Three Day Rule’ in dating-game and soon we may have a ‘Seven Day Rule’ and this rule that could be a standard across all consumer services. Industries that are caught up in this range from broadband providers to mobile network companies and includes, most interestingly, mortgage providers.

‘Mortgage’ is one of those words that now, in London, has two contrasting meanings, depending on who you are:

It can mean ‘enabler’

noun: a person or thing that makes something possible.

It can mean ‘obstacle’

noun: a thing that blocks one's way or prevents or hinders progress.

Nowadays the goal of owning a house, even with a mortgage, is out of many people’s reach. But for those who can get them, they are a lifesaver. Either way, it is still big business. In the first quarter of 2015 alone, lenders provided over £44Bn to people looking to buy homes in the UK.

The world of mortgages has remained relatively unchanged, all the power has sat with the large institutions, while consumers are made to jump through hoops to qualify. Now though, the market is set to be shaken up, and the tables turned. What will consumers demand from their lenders to stop them shopping around? And how will the power shift resonate with the way mortgages are dished out?

Mortgages have been in the firing line from a number of industry experts claiming that it’s the last frontier for fintech. Habito, a good friend of Bud’s, is one of these eager fintech disruptors. Scott Williams, VP of Marketing, had this to say about the news:

‘Any development that step changes the experience of the mortgage industry will no doubt benefit the customer. There has been zero innovation within the mortgage industry for the last 30 years, so we welcome the news.’

More and more we are seeing the power shift from large institutions to the consumers that pay them. Business Secretary Sajid Javid said "I want to give consumers more power over switching providers for the services they rely on to make sure they are getting the best deals.”

But how often are people taking advantage of that power? Switching between banks has been made much easier. Since September ‘13 customers have been able to switch their bank within 7 days. 124,615 accounts were swapped in March of this year out of a total 51million accounts in the UK. Will we see more people take advantage of the same standard in mortgages? Pradeep Raman, Founder of Dwell Mortgages, a company “rethinking the entire model of mortgage services”, had this to say:

“Lenders have every incentive to increase switching costs to customers and sometimes do so with perverse tactics such as unnecessarily long time and paperwork to switch. Rules to enforce a reasonable timeframe should be welcomed since they let consumers embrace choice. However, mortgages come with heavy early payment penalties making switching impractical for most customers. Also, if people switch frequently, lenders will no longer be able to offer very low initial rates to customers since the economics only work if they retain customers for a certain period. They are likely to increase rates to mitigate easy switching thus negating the benefits of switching.”

All things considered the good news is that we - the general public - will be the overall winners. Like most industries, the change to ‘personal’ and ‘individual’ is a compelling one. The ‘like it or lump it’ attitude from business doesn’t fly now and people are becoming more clued up. Any initiative that lets the people decide their own fate is a winner in our book. Hopefully mortgage providers don’t see this as a threat, but more as a way to gain advantage with customer experience, added value opportunities and moments of delight.

After all, ‘generation rent’ could use all the help they can get on their journey to buy a home.

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