According to Absa, which holds nearly a quarter of the local mortgage market, housing demand was strong in 2021, with loan applications up by 18% as against 2020, and 48% as against the previous year. Confidence in the South African property market has also improved.
However, the recent increase in the interest rate and the severe cost-of-living pressure caused by the recent lockdowns, Russia's invasion of the Ukraine and soaring energy and food prices indicate tougher times ahead as consumers pull in their horns.
At this stage, it is hard to predict exactly how the market will react − either the demand for home loans will shrink absolutely, or consumers will be on the lookout for lenders that can add extra value while reducing costs.
In both cases, the conclusion is clear: competition between lenders will become fiercer. In the US market since the 2008 financial crisis, the mortgage market has become more competitive, largely owing to the emergence of many new smaller, digital players and consumers being instantly able to compare mortgage products and rate offerings. McKinsey confirms that smaller players have gained market share.
The same scenario is playing out in other markets, and South Africa is no exception. Of particular note is the trend towards the bundling of real estate services with mortgages, as evidenced by the evolution of the ecosystem concept by sites such as Private Property and Property24.
As always, those that can offer a better customer experience allied to a reduction in cost will emerge on top. Key drivers of both will be a greater amount of automation.
Automation is one of the major benefits of digital transformation. While South African financial institutions have invested heavily in IT over the years, they are still far from being fully digitalised, and their various business units remain stubbornly siloed.
When competition is fierce, lending money is simply table stakes − financial institutions need to become partners to their customers.
This inability to realise fully the benefits of a digital, automated business process has rendered them vulnerable to disruption by new digital-only entrants that are untrammelled by legacy systems or organograms.
Smart lenders should be developing clear strategies for digitalising their business processes with the dual aim of improving the customer experience while gaining efficiencies that can be translated into lower costs.
Here are some of the main issues to be considered:
Understand what customers want. It is surprising how many projects get under way based on what companies think their customers want. When competition is fierce, lending money is simply table stakes − financial institutions need to become partners to their customers.
Based on global markets, it seems that while borrowers expect (and even welcome) a digitalised process, they also value person-to-person communication. Researchers show that while borrowers use e-mail, they are most satisfied (80%) with in-person meetings with their lenders. In particular, younger borrowers would like a process that combines technology with greater transparency and better communication.
One should not be surprised by this, as a home purchase is typically the largest any individual makes. This is likely even more the case in South Africa where the proportion of first-time buyers is exceptionally high. Even in the US, 31% of mortgage applications are from first-time buyers. Low interest rates in SA until 2022 also led to an influx of first-time buyers.
Another key point is that there is a growing expectation among consumers for greater speed across the mortgage process, especially across closing. This trend is most noticeable in younger users. Time spent educating consumers about typical timelines will help to manage expectations and improve the customer experience.
Provide useful information on your website. One of the major trends is that consumers in general are relying more and more on the internet to conduct research before purchasing. This is true for consumer goods, even if the actual purchase is made in store. One way to put clear water between yourself and competitors is to provide prospects with more than the ubiquitous calculator. Research shows the top reported first step for consumers is looking online.
There is a lot of information on the web, but much of it is not useful − positioning your brand as the trusted source of mortgage and related information will pay long-term dividends.
Requiring researchers to register could also provide leads for that all-important personal contact. Security and compliance are key concerns for everyone. Given rising cyber crime statistics, security is a key concern for any online financial transaction, including applying for a mortgage.
Aside from putting controls in place, lenders should be sure to include comprehensive guidelines to consumers for protecting their information.
For lenders, compliance with regulatory provisions is top of mind, closely followed by data security − the Protection of Personal Information Act is now fully in force and the regulator is reportedly beefing up its investigation capabilities and promising punitive fines.
Cyber security thus becomes a key success lever for lenders, both in terms of customers and regulators. They should not overlook the obvious: implement secure solutions for transmitting and storing documents, and avoid using unencrypted e-mails or personal devices for communicating.
Consider an end-to-end digitalised process. A mortgage application is a complex process, requiring a large amount of documentation in various formats, and a series of decisions across the lender organisation. Typically, while some of the process is digitalised, much of the content remains in paper format, in spreadsheets and so on.
A document tracking solution will deliver transparency in the name of better customer service, reduced administration costs and better compliance, irrespective of how many document formats exist.
Digitalisation would also ensure the application progresses through all the necessary stages and approvals, something that is virtually impossible to monitor on a spreadsheet if there are hundreds of applications. Another important fact of life is that the documentation arrives in no particular sequence, so the software must be able to aggregate it intelligently, extract the data from it, no matter the format, and then validate it.
The validation process dramatically increases accuracy and eliminates most manual data entry. It also highlights exceptions, which can then be addressed by the human staff freed up from data processing.
Naturally, the document tracking system would operate across the loan's life cycle, ensuring that expiring and new documentation are flagged when appropriate, thus further guaranteeing compliance. Such a system can also provide a complete view of the prospect pipeline, as tracking would begin the moment a lead is created.
Data from Arizent Research shows consumers are open to greater use of technology, especially if it leads to faster closings.
Improve the customer experience. It may sound trite, but it is worth concluding where we began, with the customer. It is essential to keep the bigger picture in mind. Once the loan application and management process is digitalised and streamlined, the financial institution has a great deal of new information about its customers' experience, their needs and expectations, their preferred channels, their information requirements and who else they relied on in making their initial choice of provider.
All of this information needs to be presented to management in order to prompt a virtuous cycle of improvement so that the customer experience is continually improved.
This kind of detailed knowledge can also be used to upskill existing employees and onboard new staff more effectively.
The mortgage or home loan market remains a key target for financial institutions. As it becomes more and more competitive, what will set the leaders apart is the superior customer experience they can offer underpinned by a streamlined and cost-effective internal process. Technology is a large part of the answer.
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