The main economic benefits of “fixing the broken chain” are lower mortgage pricing and allowing more movement in the housing sector, a lender executive has said.
Speaking at an event talking about Santander’s Fixing the Broken Chain report, David Morris (pictured), head of homes at Santander, explained: “The cost of lending absolutely will go down if you’ve got more certainty in the [home buying] process; lenders like ourselves can price that in. We’re having to make assumptions that certain numbers of transactions are going to fail.
“If we know that that number is much, much smaller, the cost is shared. We can then do clever things on how we sort of fund our mortgages, but [improvements in the home buying process] absolutely will flow through into [the] cost of things like mortgages.
“I suspect it will also flow through into things like [the] cost of practically selling, estate agents will have… a similar challenge, so that will all come down, which will help make homes more affordable and the process cheaper.”
Morris said there is also trapped liquidity in the market, as “there are lots of people who live in houses that are too big” and people are “struggling to get on the housing ladder”.
“We know that the home buying process stops people who might want to sell their home on the market, so I think the first thing we need to recognise is that if we can find a way of making the process easier, you will find ways of getting people into the homes that they want, which might exist but are currently not going on to market. I think that’s important for society, and I think the economic value that creates is important,” he noted.
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Home buying reform has to be a ‘joint effort’
Morris said the “reality is we can offer mortgages more cheaply if we resolve this”, but the “challenge” at the moment is that it’s “priced in” and “people have got comfortable with the economics”.
He noted that there is “complexity” in getting “everyone in the room”, like lenders, conveyancers and proptech firms.
“I think there’s probably a: ‘yes, we’re losing money, but we priced it in and it’s so hard to resolve’, which is why I think if we can find a way to get all of the stakeholders to come together, and all of us taking a share of the load, what you’ll probably find is because it is in everyone’s interests, everyone will come to the table try and drive this through.
“This has to be a joint effort. But I think, through all those feedback and conversations I’ve had, is if the lenders aren’t prepared to drive this, it’s going to be so hard for the for the market to move, so I think there is something on us taking a leadership role, and I think that’s a conversation we need to have,” Morris said.
Home buying reform ‘shouldn’t fundamentally change the broker market’
When asked about whether digitalising the home buying process could potentially bypass mortgage brokers, Morris said a lot of the digitisation focus was on the post-offer process.
“I suppose where the question would be coming from… is there a world where, for example, you could see property portals, where you’ve got the house for sale and got all the information, and you can start to do everything and then go through the whole process. I suppose that’s probably the hypothesis.
“The reality is most lending, most of the questions, most of the focus, tends to be on the applicant. You still need that decision in principle, you still need somebody to be prepared to give an applicant a mortgage on this, and… this is where the broker comes in,” he added.
Morris said he still thought that the “broker still needs to be helping the customer get to the point where actually they’ve got a lender who [is] prepared to give them a mortgage”.
This would allow them to go into the buying process as a “good prospect”, as they can prove that a lender wanted to lend to them.
“I still see these reforms as being focused on the post-offer process, and therefore they shouldn’t fundamentally challenge the broker market. But if I’m misreading that or missing something, it’d be great to follow up and explore that, because at Santander, we think that the broker market works really well and we don’t want to undermine it,” he added.
Private sector can ‘fund and drive’ home buying reform but needs input from government
A key question that came up during the discussion was who would pay for digitising the home buying process. Morris said there were “examples in the market where private enterprise, government and other sort[s] of parties have been able to come together and create the kind of bodies that let us derive these types of actions” – for instance, open banking.
He added: “I do think there is a way that the private sector can fund and drive it, but I do think the impetus needs to come from the government or the regulator. You need somebody to push it and start it and play that slightly more agnostic position, genuinely in the interest of the customer.
“I do think there is a way that… we can fund it, but I think it has to be almost under the sponsorship of government.”
Angela Hesketh, head of market development for Pexa UK and board member of the Open Property Data Association (OPDA), added that the “industry are paying for it”.
“They are doing it, and they are creating digital solutions. We are doing that. We’re there. What we require is the wraparound from government in relation to policy, and for them to commit to the digitisation of the data that they hold.
“I think in the centre, we are all doing this already, but we can’t do it without that wraparound [of] it,” she added.