Many people have a career change. Before venturing into fintech, Daniel Hegarty, founder of digital mortgage broker Habito, was a professional musician, composing for TV and film and touring internationally.
In 2007, he joined a few people trying to work out how to do loans on the internet in real time, in a pre-launch company that was later named Wonga. “I stumbled in there and was fortunate that I was a secret geek who got quite excited about real time credit decisioning and the machine learning that was already emerging.”
As Wonga’s head of product, Hegarty spent his time building its technology, and developing the business’s products for an international market. “It was a pretty steep learning curve. We went from a handful of us to 1,000 in about five years. Obviously Wonga has its own complex story, but what I learnt was the enormous potential technology offers to improve real world financial services and consumer financial problems.”
Leaving Wonga at the end of 2013, he set about working out what he’d do next. “I was looking at a few opportunities both here and in the US, and it just so happened that I was, at the same time, buying my first house.”
Hegarty had what he describes as an “absolutely horrifying experience” with a broker. “I made the application, and the broker managed to write down me, my wife and my wife. That confused the bank, which then rejected it presumably on the basis of suspected bigamy. The application was then re-sent, but instead of taking my wife off once, they’d taken me off – which then triggered another 10 day cycle with the bank. We came quite close to losing the house. It was a shocking insight into an industry I had been almost entirely ignorant of.”
The experience was enough to spur Hegarty into action. “If you were to apply for a mortgage with any broker who isn’t us, you’d normally be sent a Word document that’s about 10 to 15 pages long. They then decide which mortgage they think is appropriate, often steering you towards certain products, then log in with the provider and manually re-type in the details you’ve given them – around 10 to 20 per cent of lenders only accept applications by post or fax.
"Already the odds of that information being correct are pretty low. The truth is that there are no pipes, no APIs, no web services… consumers take half days off work to go through the application. This is an industry of people carrying buckets of water from one place to another. You end up with the Byzantine Chinese whispers where nobody’s entirely clear on what’s happening.”
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Launching Habito last year, Hegarty honed in on two things. With nearly 100 lenders and 10,000 different products available in the UK, and prices often difficult to understand because of the focus on interest rates in rate tables, the startup needed to aggregate the entire market. Most brokers will look at 11 to 12 lenders and process an application in two to three weeks. Habito analyses deals from 60 lenders in seconds.
Secondly, it re-thinks mortgage advice. “You see people bullied into products that aren’t right for them, with estate agents pushing people towards their in-house brokers, and those brokers pushing certain products.”
The company’s answer is a digital mortgage adviser: an AI chatbot that maps all current market regulations and a) provides information to a consumer in the form of pros and cons for each product, and b) guides them through, in 10 to 15 minutes, a full advice interview, offering real time agreements in principle with a provider.
“We find out not necessarily which lender they should go with but what kind of mortgage is appropriate for them.” An application is then made online and sent direct to lenders, whose response to, and co-operation with, Habito has been “fantastic”, says Hegarty. It is the lenders, incidentally, who pay Habito, while the mortgage applicant gets told what the startup is being paid when they make their application.
£1.7 trillion market
Of course, the fintech industry hasn’t traditionally veered towards the residential mortgage market. I ask Hegarty what he thinks is changing.
“Are we climbing a bit further up the tree? I really love consumer businesses. B2B isn’t in my DNA, so mortgage and insurance have always been the elephants in the room... They’re extraordinarily complicated in terms of the instruments, the regulatory environment… it’s tough. But we all crave abstraction from our finances, and the reality is that, if you can be where consumers are experiencing moments of emotional magnitude and transacting large sums of money, then there’s always a business there. Yes, residential mortgages are very low margin, broker fees are slim, but this is a £1.7 trillion market.”
Habito’s position as part of the latest wave of fintech firms is underlined by its investors, most of whom are fintech founders themselves: Samir Desai of Funding Circle, Taavet Hinrikus of Transferwise and Paul Forster of indeed.com all came in for the seed round. “They’ve been brilliant – harder sells than VCs, but you want people who are going to ask you tough questions, bring knowledge and help you contextualise.”
But Hegarty thinks he might have “taken the startup element a little too seriously” in one respect – his office. When I first met him in the summer, he remarked on how nice it was to feel airconditioning. He’d just moved his 20-strong team into an un-airconditioned office above a kebab shop on Brick Lane.
“It’s not boxes of pizza on a Friday and jobs where you just think about what other people should be doing. You have to love the dull and detail, and I do. We’re librarians, really – we’ve read everything about the market and mapped it very carefully. When we started, we were buying up old laptops and fax machines so we could run current software.” In the New Year, the team is moving again to larger, airconditioned offices.
Hegarty thinks that, in time, fintech will become less visible, rather than more (“no-one wants to see pie charts of how much they’re spending on coffees; they just want to know everything is going to be okay.”). A key aim for him is to crack remortgaging for consumers. “I hope there will come a day where, every two years, we’ll pop up as a notification on your phone: ‘your fixed term is coming to an end. Click here and we’ll remortgage you with the best possible deal.’ Mortgages are absolutely a means to an end for people, so there’s got to be a tight limit on interaction.”
The founder points out there are 2m people in the UK who have mortgages on standard variable rates, which can be about double an introductory rate. One in four of those consumers could save an average of £3,000 if they remortgaged.
“Consumers aren’t remortgaging. Perhaps their circumstances have changed, but what we found via a YouGov poll we commissioned is that one in three wouldn’t remortgage for any amount of savings, because the process is just too bemusing and stressful. That’s absolutely crazy. It means lenders are making a huge premium, and people are losing out. We think that has to end.” Currently, you can go onto Habito and, in four fields and a click, find out if you’re one of the one in four, and how much you could save.
“The point is that people are going to buy houses no matter how bad the processes are. We need to see radical change in transparency and speed of transactions across the entire market. You’ve got estate agents, mortgages, conveyancing, surveying (which is a total s*** show because it’s often someone literally driving past a house and checking it’s there)… there are some great companies working on the different verticals. What we haven’t got is a common spine or system of operation. It’ll be very interesting to see how co-operation develops, while the big challenge will be getting the banks on board. But I would suggest both are inevitable, and not in the too distant future.”