A new multi-dimensional approach to product development – Mortgage Finance Gazette
Following on from the bumper year we have just had, where many lenders comfortably beat their lending targets, the softer market ahead presents those lenders with a challenge. In order to achieve the volumes, they need for commercial success, mortgage lenders will need to grow their market share and will come under greater pressure to improve their margins, either by reaching the right borrower more effectively, or pricing more efficiently.
Clearly, in a shrinking and competitive market, not all lenders will be able to accomplish this. Those lenders that are successful in doing will be the ones who take a smarter approach to product development, refining their propositions to directly target customer requirements.
Thankfully, we have already moved on a long way from the days when lender product development was based predominantly on anecdotal evidence from business development managers, who had canvassed their broker contacts to identify opportunities to improve their proposition.
Broker feedback certainly has its place, but it’s a fairly blunt tool that doesn’t provide the detail lenders need to fine tune their offering. So, lenders have become more sophisticated in using data-driven modelling to refine new products prior to launch.
However, the problem so far has been that lenders only have detailed information of their own products, with the main piece of publicly available information for their competitors being rate. But this doesn’t take into consideration how often a lender might be eligible and affordable against its peers, and therefore doesn’t reflect true performance of the product. This can often result in a lender quickly having to pull products because it’s overloaded its service capability or having to go back to the drawing board as the impact was underwhelming.
Mortgage development is multi-dimensional, involving a number of different factors that interact with each other to deliver a product that meets customer needs as well as the risk appetite of the lender. It can only be truly data-driven if it includes data from a range of lenders and that requires a third-party provider with access to this data.
This is why, at Mortgage Broker Tools (MBT), we are in the process of launching MBT Lender Sandbox, predictive mortgage modelling software that empowers lenders to best build, price and deliver improved mortgage propositions.
Lender Sandbox will be able to predict volume, measure the impact of changes to rates, fees, criteria and affordability, and provide comparison to competitor products, giving lenders real-time insights that enable them to make quicker decisions.
Lenders have traditionally made decisions on limited data and mostly used price as a lever to control volume and margin, we plan to change this.
In a tightening market, all of these considerations will gain greater importance. For lenders to grow their market share, they must juggle conflicting objectives, retaining existing members, competitiveness, profitability with good return on capital whilst treating the customer fairly and meeting regulatory requirements.
This year and the years ahead will require lenders to take multi-dimensional approach to product development. Those lenders that take a data-driven approach will doing this will gain the advantage in an increasingly competitive environment.
Tanya Toumadj is chief executive at Mortgage Broker Tools