The phrase “less is more” became synonymous with the early 20th-century Bauhaus architect and designer Mies van der Rohe. In three words, he encapsulated the central ethic of modernism – the idea that true beauty is what remains when every unnecessary adornment has been stripped away.
This sentiment holds good today in many walks of life, yet in the world of technology, it is rarely uttered. The most seismic change in our generation has been the dawn and evolution of the internet. It has fundamentally and irreversibly changed our lives.
The majority would argue this technological revolution has improved our lives – undeniably, it has. But nearly all of us would also admit it is not one-way traffic. The proliferation of information facilitated by the web, social media, cloud computing and, imminently the metaverse is incomprehensible to the human brain.
There comes a point where there is too much information.
While computers haven’t got the stage of harvesting humans to power their inorganic world (yet), I am not kidding when I talk about this. Technology is so often hailed as the answer to everything.
If it’s hard to get – tech’ll fix it. If it’s impossible to understand – tech’ll translate it. If it takes too long – tech’ll speed it up.
Technology will do all of these things, and it is, more often than not, to our benefit.
Mies van der Rohe had a point when he said less is more. The advantage of more information should be that we are better equipped to make informed and therefore responsible decisions.
There comes a point when it becomes impossible to judge rationally based on all the facts – there is too much information, too many facts and not enough knowledge to interpret it all sensibly.
Sometimes I wonder just how much data there is in the world now and what proportion is used.
This brings me to mortgage lending.
How we use information is the defining factor in whether its use is a help or hindrance.
In our world, the mortgage market, open banking has been heralded by many as the ultimate solution to all financial problems. The answer to the ultimate question of life, the universe and everything is 42 if you will.
I’m not such a luddite that I would argue open banking hasn’t improved things for both customers and businesses in the years since it first came in. It has.
Savings habits facilitated by apps connecting via API to customer current accounts and credit cards to allow spending round-ups to be swept into an investment or savings account are a wonder. Linking cloud accounting software to your business banking and pulling in tax calculations has probably averted several hundred thousand heart attacks.
But open banking is not a panacea. How we use information is the defining factor in whether its use is a help or hindrance.
When assessing borrowers’ affordability, I am wary of blindly believing that total visibility of a person’s finances is actually terribly helpful. For lenders, it means vastly more information to consider – information that, once received, they must consider. For borrowers, it means absolutely no room for imperfect financial behaviour or complex income.
Anyone who’s had emotional, familial, social, educational, romantic and health ups and downs in their lives will tell you it affects financial behaviour. So does experience, however – sometimes the past isn’t a reliable guide to the future. So said someone wise, anyway.
Open banking is not a panacea but a work in progress.
Predictive behavioural analytics notwithstanding, I still question if data crunching can always rival human judgement when it comes to nuance and an individual.
For lenders, the degree to which underwriting integrates and relies on open banking frameworks and 360-degree visibility of a customer’s financial circumstances will be a pressing consideration.
As with all decisions, I would tend towards the idea that the answer depends. The aggregation of big data to inform analytics which can then be applied to average customer types, is usually helpful. Assessing one person’s data – or one data point from a median behavioural point of view – is probably less helpful.
This is especially true for anyone whose risk presents as even a moderate outlier. Lenders understand what the right questions are when determining if a borrower is a reliable prospect. Introducing more information into this assessment might sound like it will help deliver better lending decisions and consumer outcomes. It might just muddy the waters and leave lenders at a loss on how to make a sensible and responsible judgement, resulting in the borrower being approved, the home being bought, and, 99.9 times out of 100, the loan being repaid.
Open banking is not a panacea but a work in progress. It needs to enable lending - not prevent it - and part of that is lenders knowing what issues and bits of the mortgage process it fixes for them. Discovering more about individuals at face value must be a good thing, but it depends on what you find out and then what you decide to do (if anything) about it. Is the mortgage process ready for much more complexity? For many lenders, there are more pressing issues to address.
This article first appeared in Mortgage Introducer.
Mortgage Efficiency Survey 2022
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The past 12 months have brought much change and new challenges for UK mortgage lenders, but the need to process business efficiently has not changed. Using insight from a broad range of lenders, all with different experiences and approaches, this report shows how the industry's thinking and approach have evolved.
