zeb Digital Mortgage Lending Study 2021
Construction and housing financing: digital offerings required
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- Bank customers are willing to handle part of the mortgage process digitally: a large majority of customers searches for information online, would apply for a loan on the web and submit documents accordingly.
- Mortgage customers look for a bank to guide them through the process of buying a home. This includes housing, insurance and legal advice.
- The share of mortgages in bank income has increased from 17 to 27 percent in Germany, from 19 to 44 percent in Austria and from 37 to even 67 percent in Switzerland over the past ten years. Online mortgages are the next big revenue driver for banks.
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The coronavirus pandemic and working from home have increased the importance of people’s living environment. In 2020, there was a veritable run on real estate financing and home loans, partly due to historically low interest rates. The high demand on the real estate market is also putting pressure on banks. Fast financing commitments are required. To make matters worse, social distancing meant that hardly any one-on-one meetings on financing could take place.
“At that point, of course, many customers immediately ask themselves the legitimate question: Can I also compare offerings and apply for financing online?” says Michaela Schneider, Managing Partner at zeb Austria, a strategy and management consultancy in the financial services sector. “Banks inevitably have to look closely at this issue because mortgage lending has become a significant part of their source of revenues over the past decade,” Schneider states. In a study in the DACH region, the consulting firm surveyed what services potential borrowers would use online, what they expect from their bank, and analyzed how financial institutions need to position themselves to meet customer expectations.
Much is desired in digital form, but also personal advice. For 94 percent of respondents, it is clear that they research online before going to their bank to apply for a mortgage. Demand for digital channels was highest among younger customers. Across all age groups, survey results suggest that clear guidance on the mortgage process and accompanying services could overcome people’s reservations towards online mortgages. Respondents mentioned several ways banks could entice them away from branches and onto digital channels: by offering more attractive online mortgages with a certain added value, especially better terms (80%), step-by-step guidance (62%) and a faster process (52%). A slight majority of respondents (53%) still prefer personal advice offline.
“As the study shows, mortgage customers are willing to handle part of the process digitally. Customers appreciate good advice, a trustworthy partner, transparency and support in navigating through the complex process,” Christoph Fischer, study author and Senior Consultant at zeb, summarizes the results. He believes that the comparability of loan terms is particularly important because comparison platforms are also gaining in importance for financial services, as can be seen in rate calculators.
Digitalization process with great potential. “Many banking and financial services are now provided online, for example bank transfers or securities transactions. The coronavirus pandemic has given digitalization another huge boost. Online mortgages are the next big thing,” Fischer is certain. So far, however, there have only been very simple digital offerings in a few financial institutions. This needs to change, on the one hand to meet customer wishes, and on the other hand because of the significance of the mortgage lending business for banking institutions. Over the past decade, the share of mortgages in bank income has steadily increased in the main European markets. For example, zeb research shows that the share of construction and housing financing in retail banking income in Germany increased from 17 percent in 2011 to 27 percent in 2019. In Austria, the share rose from 19 percent to 44 percent in the same period, and in Switzerland from 37 percent to even 67 percent.
“The entire lending process needs to be fundamentally rethought. Banks need to move away from some practices that have historically grown. The focus is on simple products, and fast and efficient processes are made possible by automated risk assessments and collateral valuations,” bank consultant Fischer says. “Automated processes increase the profitability for banks and meet customer expectations. What counts most for customers are the comparability of terms and speed. After all, days or even a few hours are often decisive in the purchase of real estate. There are usually countless interested parties for attractive apartments or houses. Those who can quickly show the real estate agent a financing certificate from the bank have a better hand to play. Largely digital processes can offer the decisive advantage here,” Fischer says.
“Beyond banking” offerings required. “Online mortgages are a previously overlooked but a rapidly growing source of revenue for financial institutions. Operationally, banks need to act quickly to gain an early competitive advantage in the digital mortgage market. Through digital construction and housing financing, they can drive growth by tapping into new customer markets,” explains Laura Patsch, another study author and Senior Consultant at zeb. In her opinion, however, it is not enough for banks to concentrate on pure financing business, as they have done in the past.
“Our survey underscores customer interest in additional services evolving around home loans. Mortgage customers want their bank to cover a broader part of their path towards buying a home. 63 percent of respondents consider real estate appraisal a useful additional service, and 67 percent are interested in legal services,” Patsch says. With such ‘beyond banking’ offerings, financial institutions could increase the demand for mortgage loans, especially if the service offered is integrated into the mortgage process, the zeb expert concludes.
As a leading strategy and management consultancy, zeb has been offering transformation expertise along the entire value chain in the financial services sector in Europe since 1992. In Germany, we operate offices in Frankfurt, Berlin, Hamburg, Munich and Münster (HQ). Our international locations are in Amsterdam, Copenhagen, Kiev, London, Luxembourg, Milan, Moscow, Oslo, Stockholm, Vienna, Warsaw and Zurich. Our clients include European large-cap and private banks, regional banks, insurers as well as all kinds of financial intermediaries. Several times already, our company has been classed and acknowledged as “best consultancy” for the financial sector in industry rankings.
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