Interview: the future of better mortgages
We’ve been hinting at it for weeks now, but the big day is finally here! We’re releasing our report on the emerging trends in mortgages. Our CEO, Erik Bennerhult, shares some of his insights.
Why release a report about trends in mortgages?
Well, the report looks at how far we have come and where we are going, and as a self-professed mortgage nerd, I find it incredibly interesting. Moreover, this theme of digitising mortgages has been hot for the last three years or so. There has been much talk about how this would happen. In some ways, it seems like a lot is happening with the digitalisation of mortgages. Especially on the surface, things have been progressing, all the banks now have a digital application process, and there have been a few new players entering the market. At the same time, progress is happening almost painfully slowly. These new players have yet to reach significant volumes, and the incumbent banks are just papering over the cracks – they have the same problematic system, but they have added a friendly interface for consumers.
As Bill Gates so eloquently put it, “most people overestimate what they can do in one year and underestimate what they can do in ten years”. The expectation was that in 2019 we were going to see digital mortgages start to take off. The reality is that we have seen some slight changes due to digitalisation, but these have mostly been cosmetic. In a few years, we’ll see much more significant changes than anyone foresaw back in 2019.
What are the biggest challenges in mortgages today?
It depends on whom you ask. If you ask mortgage customers, the real pain is if you physically have to go to the bank, but there is also the hassle of completing all the paperwork and providing all the requested documents. Even if you fit the mould and are the perfect banking customer, it still takes time, and you probably still need to go there. It is way more cumbersome than applying for a consumer loan on your phone. It’s even worse if you don’t fit the mould. Then you need to jump through additional hoops like sending extra documentation. Then there are the issues we have talked about in other articles, with not being able to compare offers or apply at multiple banks – it isn’t a transparent working market.
There is a reason digitising mortgages is still such a young field within fintech. Even though mortgages are such a big part of banking, there are many complexities. Within banks, the processes are still incredibly tedious and manual. There are multiple different inefficient systems for different parts of the application, which don’t talk to each other, and the process requires a lot of manual oversight. Yet, replacing these systems is a nightmare and will probably take years. For the new players entering the market, there are also many challenges; the mortgage processes, regulations, the lack of transparency. Joining an established market with some enormous players is far from easy.
Were there any surprises in the report?
I found it interesting that the big four banks were only responsible for 58% of new lending during 2019. This is a considerable drop from the current market share of 74%. On the one hand, fintech adoption in mortgages feels like it is going slower than everyone predicted. On the other hand, the big four are issuing way fewer mortgages than anticipated, and this was even before the pandemic. This means incumbents are already starting to lose market share, and someone else is beginning to gain it. This was surprising. If I were one of these banks losing market share, I would start to worry; it’s a massive drop from 74% to 58%.
What three things did you find most interesting in the report?
- We often think of Sweden as a world leader when it comes to fintech. We have an impressive number of fintech unicorns, especially given our size. In 2018, the Nordics raised €347 million in investments, and Sweden accounted for half of these. We have BankID and widespread adoption of digital financial services. Yet, when it comes to consumer fintech adoption, we scored just 64%, far behind China (87%), India (87%) and the UK (71%). Putting Sweden into the global context puts innovation into perspective.
- I find it fascinating how fast mortgage startups are growing. For example, Hypoteket has been doubling its mortgage lending year-on-year since it launched in 2018. This indicates that the market is there, and the demand for consumer-friendly mortgages is high.
- The complexities that exist across Europe, especially when it comes to mortgages and how different Europe is compared to the US. There are very different market conditions in almost every country and different regulations. It will be interesting to see how the market progresses in Europe. Will it begin to resemble the US more, or will it take a completely different path?
How do mortgages look in the future?
The future is digital. The transformation of mortgages has been happening slower than expected, but it is happening. More and more players are entering the sector, as well as new mortgage brokers. Suggesting the market is going to be a lot more digital in just a few years. The evolution of the mortgage lending industry in Sweden resembles that of consumer lending in the early 2000s. In the beginning, it looks like nothing is happening, but when you get closer, you realise that the game is changing. You can read more about the development of consumer lending in Sweden here.
The question is, who will be the winners? We don’t know, but we know it will be digital. Will it be the incumbents, the new players or someone else altogether? As tech, expectations and regulations continue to change the mortgage landscape, smart players will consider switching strategies and embracing the latest tech to seize opportunities.
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