With four Chancellors in as many months, the market has been sent into disarray and now despite the mini budget U-turn, rates on two and five year mortgages remain at their highest since the 2008 financial crash.
As consumers navigate this chaotic market and ongoing economic uncertainty, there are many vulnerable Brits who require fair access to financial services now more than ever. With the UK’s sector of self-employed in particular bearing the brunt of the economic storm before us, it is now imperative that people can access effective financial support.
Some positive steps have already been made, for example the banking sector has successfully reduced the number of UK adults believed to be unbanked by half a million between 2014 and 2020.
Yet with the news that banks are now setting aside money as more UK borrowers are falling behind on their mortgage and loan payments due to the cost of living crisis, lenders must acquire easier and more streamlined access to consumer data in order to support vulnerable consumers.
Traditional lending models are broken
AtTink, we recently surveyed UK consumers and uncovered that the UK’s self-employed are disproportionately struggling to access the financial services they need, leading many to believe that the system as a whole works against them due to their employment status.
We found a stark 28% of self-employed Brits are struggling to access the financial services they require, while over a quarter (27%) feel they have been actively discriminated against whilst trying to do so.
A further 16% report struggling to be accepted for personal banking services such as current or savings accounts, compared to a national average of 7%.
An area where this gap is particularly prominent is when securing a mortgage, and the recent turmoil in the UK market has compounded this problem further.
There is a noticeable gap between the service self-employed people require versus what they currently receive.
Our research found that double the amount of self-employed people say they have been rejected for a mortgage compared to the national average (15% vs 7% respectively), and of these, one in three (33%) believe that their employment status has been a direct obstacle.
With the UK’s 4.25 million self-employed making up a sizable chunk of the mortgage-seeking population, lenders cannot afford to underserve this cohort any longer.
Open banking data holds the answer
Many lenders do not currently have the right tools in place to make fair and accurate lending decisions.
Data-driven technology like open banking can revolutionise the existing outdated and blinkered lending process by enabling faster and more accurate real-time credit decisions which work for everyone – including the self-employed.
In practical terms, open banking provides immediate access to consumers’ bank account data. This means things like verifying a consumer’s income as part of mortgage affordability checks can be done in an instant with data directly from their account, rather than clunky paper-driven processes which in some cases can take weeks.
Having up-to-date income and spending information, rather than credit scores or paper-based models, allows lenders to make better decisions about affordability and creditworthiness.
This is crucial for self-employed borrowers, as proving income and the ability to pay their bills or debts is a much more challenging process.
By utilising open banking, lenders can provide a holistic service and ensure everyone who is entitled to credit or a loan or mortgage secures one, including the self-employed.
In the same vein, it also allows lenders to accurately see who shouldn’t be getting a loan, as well as providing visibility of those who are vulnerable and need support.
Partnering with nimble fintechs
A shift to a seamless and inclusive lending processes does not happen overnight, and lenders and financial institutions aren’t necessarily expected to home-grow the required affordability models.
To this end, lenders and financial service providers keen to embark on the journey of developing new services need to be cognisant of the benefits of partnering with nimble fintechs that can take the heavy lifting out of their endeavours.
Partnerships like these can accelerate innovation and arm providers with the technology, expertise and vision to drive value creation through open banking — helping them to realise their objectives.
For example, Tink partnered with American Express to streamline the process of onboarding new card members. As American Express has over 100 million card users worldwide, Tink’s account verification, income verification and risk analysis technology eliminates the need for customers to manually enter details and provide additional documentation.
This smooth and seamless process saves time, setting the bar for how other brands must leverage open banking technology to improve the customer experience.
Looking to the future
Steps have been taken in the right direction, such as the FCA’s recent call out asking both insurers and banks to have appropriate solutions for borrowers following the withdrawal of a number of mortgage deals and the economic crisis gripping the UK.
However, lenders should not wait around for other players to make changes that improve access to lending, and they must unlock fairer affordability checks to best support consumers and businesses.
The majority of lending processes are still backwards looking, and do not take a comprehensive approach to lending. Lenders should be thinking more holistically when it comes to affordability by taking into account other factors, such as other aspects of people’s income and expenses.
For example, self-employed people may be able to pay off loans but are denied access due to the current blinkered affordability assessments. Through open banking there exists both the technology and access to financial data required to build the future of finance in a way that works for all, including the self-employed.
As the mortgage market chaos looks set to continue and the all but confirmed recession hits the UK, lenders must utilise this opportunity to make real strides in the industry. Moving away from an outdated and inefficient lending system is key to promoting financial inclusion, as people need access to safe, affordable and regulated borrowing options now more than ever.
Tasha Chouhan is UK & IE banking director at Tink
