For most of us, buying a house is the biggest financial commitment we will ever make. And even once we’ve moved in, mortgage repayments remain the most significant household outgoing.
Yet astonishingly, thousands of people never think to shop around for a better rate once they’ve secured a mortgage. The process is considered so opaque and time-consuming that millions are paying over the odds, some by as much as £4,000 a year.
Daniel Hegarty, the chief executive and founder of Habito, set out to change this. Habito calls itself a “free online mortgage broker” – the company aggregates over 20,000 mortgage products across the market in seconds to find customers the best possible deal for them, tailored to their circumstances, and shows the real cost of the loan, not a teaser rate. I caught up with him about how his company works.
Talk us step-by-step the process works online mortgage brokers.
With online brokers, customers can sort their mortgage for free and entirely online. At Habito, the process begins with a simple conversation with our Digital Mortgage Adviser – a chatbot that can be accessed 24/7 from any connected device.
Our platform then analyses thousands of mortgage products from over 70 lenders in a matter of seconds to find the best product for that person. This provides a personalised mortgage illustration of how much you could borrow and what your monthly repayments might look like.
Then it is over to our team of in-house mortgage experts to discuss the options through with the customer. This is done over live chat meaning customers can access great advice wherever they are. Once a customer has decided on the right mortgage our team will see the application process through with them until the end.
What inspired you to start Habito?
I was buying a house. It was a headache that turned into a nightmare, but it also became my business inspiration. Having found a house, had an offer accepted, deposit good to go, and mortgage application submitted, the worst should have been over. However, thanks to my broker making a mistake on the mortgage application, it was declined. The same process repeated itself a week later: application submitted, application declined – this time because of a different mistake.
On the third attempt the application was submitted and referred but further complications caused our seller to become impatient and threatened to pull out unless provided with a raft of paperwork. It was only thanks to some bike couriers and sympathetic ears in the HR departments that we managed to secure our dream home.
It beggared belief that in this day in age our experience was normal. On a closer look however, I discovered that for the last 30 years the mortgage industry had gone relatively untouched by technology.
Mortgages are a huge market – worth £1.3 trillion – and it was ready to be disrupted for the benefit of all homeowners in the UK.
How has technology changed how the mortgage process works?
Up until recently, the mortgage market was one of the last vanguards of the financial sector to not be disrupted by innovative firms. Amazingly, over 40 per cent of traditional brokers still don’t have a website. We recently surveyed the Mumsnet community, where 83 per cent said that being able to manage their mortgage online would make them far more likely to look for a better deal and switch if they could save money.
However, the last 18 months have seen positive movement, where a new breed of fintechs are using technology to bring mortgages into the twenty-first century and putting the customer back at the heart of the process.
The biggest benefit of using technology is being able to offer a faster, cheaper, and more convenient experience than a traditional mortgage application. Our sorting algorithm means we can be sure we have looked at the best deal across the market, and if the best option is with a lender or a product we don’t have access to, we’ll tell the customer to go direct.
Using technology in this way has halved the amount of time brokers spend on each case. We use machines to do the repetitive work they’re good (and incredibly accurate) at – form filling, document collation, product research – freeing up our mortgage experts to be where they can add the most value, answering questions from our customers, looking at cases that aren’t straightforward and guiding people through the process.
There is still a long way to go however. The fact that people are willing to potentially hand over hundreds, if not thousands more than they need to, rather than re-apply is a shocking indictment of the state of the service they’ve received in the past.
Don't people still want a human adviser when it comes to big decisions like mortgages?
We saw that customers valued the personal element of meetings with their bank or broker, but they hated being left waiting weeks for an appointment and often felt they weren’t being shown all the best offers available, as no bank would recommend a rival bank’s product. So the chatbot was designed to ease this pain by providing unbiased mortgage advice from any connected device, 24/7 through the web.
All that said, we don’t just use the chatbot – we also have human mortgage experts on our live-chat seven days a week. By using intelligent machines we free up the time of our advisers to do what they do best: give great advice. We’re essentially marrying AI with human mortgage experts, giving our brokers “superpowers”. The way we use human advisers is different to traditional brokers and 90 per cent of our customers say they prefer live-chat with a broker over a phone call.
What regulatory changes would you like to see?
The mortgage market needs rebuilding from first principles. In its present state it has the nation gripped by mortgage paralysis.
A combination of outdated and inflexible business practices, inadequate online tools and the existence of a special relationship between estate agents and in-house brokers, are preventing consumers’ best interests being prioritised. Having standardisation of fees, documents, document verification and submission would reduce the level of complexity associated with the mortgage process.
Equally, regulation is needed to end practices that see customers being penalised for not choosing an estate agent’s in-house broker. Information should also be provided in a way that is transparent, accurate and accessible. This should include mandatory preset text on mortgage calculators and comparison websites to prevent information being taken at face value.
We are looking to the FCA to be bold in its forthcoming mortgage market study and take swift action to repair Britain’s broken mortgage market, so that consumers don’t lose out because they are on the wrong deal for them.
What are your top tips for homebuyers or homeowners on how to save money on your mortgage?
Step away from comparison sites if you are a first time buyer. To get an accurate view of what you can afford, use a mortgage calculator that adds in all the costs you’ll pay. These are free and shouldn’t come with credit checks. Avoid comparison websites or “best buy” tables that show you different products and interest rates. There’s no way of telling if you’ll actually be eligible for them by putting in just a few details.
Don’t automatically use the estate agent for brokering. The UK’s largest mortgage broker is also the country’s largest estate agent. Countrywide brokered an astonishing £12.2bn of mortgages in 2015.
The problem is that estate agents are raking in the cash from these in-house deals and the customer isn’t benefitting. Discussing finances with an in-house broker effectively lets the estate agent know the maximum you can afford to pay for a property. This is not an ideal bargaining position.
Remember that you can remortgage when you’ve bought your home. Remortgaging is just like switching your energy, mobile or broadband provider, only with much bigger returns. If you’ve had a mortgage for more than two years your introductory offer could have expired, leaving you on an SVR (standard variable rate). Homeowners could possibly save thousands of pounds a year just by switching to a new lender.