Blog: Open Banking Could Help Mortgage Holders


Around 250,000 borrowers are currently classified as ‘mortgage prisoners’ in the UK.

Individual circumstances vary, but ultimately these borrowers are unable to remortgage or get better mortgage deals, either because of equity or affordability concerns, or because their provider has no money. appropriate new or cheaper offers to offer them.

As a result, some of these borrowers are paying rates above 5%, compared to the Bank of England base rate of 0.1%.

On April 27 this year, MPs voted against an amendment to the Financial Services Bill that would have introduced an SVR cap for mortgage prisoners – a blow to those hoping for legislative action to address the issue.

However, there may be a market based solution available for some of these borrowers. In a speech to Parliament, Economic Secretary to the Treasury John Glen reiterated that FCA analysis showed that around 125,000 (or half) of UK mortgage prisoners were classified as such simply because their current lender is “Inactive” and has no suitable new products to evolve into. Despite this, these people could respond to the normal risk appetite of lenders and thus switch providers without intervention, freeing them from the status of “prisoner”.

For these people, open banking could be the key to getting them these best deals.

The power of data

Open banking technology may be in its infancy, but it is already offering new ways to access personal financial data, allowing a deeper and more holistic understanding of a borrower’s financial situation. As a result, the widespread adoption of open banking has the potential to bring real benefits to the mortgage industry, and mortgage holders in particular.

For starters, open banking can make it much easier for brokers to find the most suitable products for complex borrowers (a category many mortgage prisoners fall into) because it uses sophisticated APIs (application programming interfaces). to share financial data between different institutions. .

When used in conjunction with automated income verification (AIV) systems, this technology can also help dramatically speed up the loan decision process.

Because AIVs verify the information in printed documents and convert it to digital format, thousands of documents can be processed each week. This can dramatically reduce processing times for lenders, allowing them to serve more borrowers faster or divert resources to working on better solutions for borrowers who need a non-standard approach.

Advisors can then use this information to get a clearer picture of the right products and lenders for their client before making a request. This way, counselors can protect anyone with affordability issues from further damage to their credit if their application is denied.

Increased efficiency

Along with these advantages, open banking is increasingly being used to reduce the manual entry required for the mortgage application process, resulting in significant time savings and reduced human errors. As a result, advisors can spend their time finding the right products for their clients, including former mortgage prisoners.

This increased efficiency can also reduce costs and allow brokers to seek out new business opportunities sparked by the recent boom in housing demand. If the industry can use this technology to improve profitability, it can also take advantage of these advancements to keep rates low for low-income borrowers and invest more in handling complex cases, such as prisoner mortgages.

While there is still a long way to go to address the mortgage prisoner problem in law and policy, technology can be a lifeline in helping advisors get a better deal for their clients.

Open banking has the unique ability to identify a range of lending and product solutions suitable for a variety of situations. This will be essential to enable mortgage holders and borrowers with complicated financial circumstances to secure a deal that meets their needs.

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