Why consumer segmentation is the future of specialist lending
Craig McKinlay (pictured), new business director, Kensington Mortgages.
The mortgage market is certainly healthy – and there is a large degree of competition amongst lenders – but the industry needs to ensure new products are consumer and value led, not simply serving the requirements of the internal market.
With society changing at such a rapid rate it is the job of the mortgage market to evolve and recalibrate its modelling in order to accommodate people who don’t fit into the neat tick boxes the high street lenders have traditionally used. Many people are now self-employed, for example, and so it’s important they are able to find a product which is right for them and genuinely competitively priced.
In order to service the changing market, lenders unfortunately cannot just look at reducing prices or relaxing lending criteria. There is, however, a different way, something that we’ve been doing for a while, which is shifting our focus to consumer segmentation. By doing this we can offer mortgages which can be tailored to different cohorts of society.
Over the last couple of years, we’ve introduced several such tailored products; buy-to-let for limited companies, 95% loan-to-value (LTV) for residential, and 85% LTV for buy-to-let for example. We’ve also found from our analysis that some consumer groups have better job security, meaning we can offer enhanced affordability. Last year we launched the Young Professionals Mortgage aimed at those under 40 who are in certain professions, such as accountants, dentists, lawyers, and teachers. Additionally, earlier this year, we have launched the Hero Mortgage for those working in the UK’s essential public services sector.
We have sought to make consumer segmentation a long-term approach rather than simply a reaction to the needs of the current market.
Nevertheless, it’s one thing for lenders to identify different consumer segments; however, it’s another to ensure the value proposition still exists, in order to ensure customer satisfaction. In the fast-paced environment we all live in now, people expect faster mortgage applications. You can apply for a credit card in a matter of minutes – but why hasn’t the mortgage market kept pace? The truth is it’s still quite a complicated process, but there is no reason why the process cannot be optimised. Twenty7Tec, for example, is helping us streamline the process making it faster and more efficient for brokers to submit applications. However, the value-led approach is still there in that we have kept our human underwriting capabilities which ensures the final decision ultimately rests with the underwriter.
With all of this in mind, looking to the future, we expect to see further innovation across the mortgage market, targeting specific consumer groups. The self-employed, for example, is a key area for the specialist lending market, especially since it accounts for 15% of the UK’s overall workforce. This number will undoubtedly continue to rise.
So, if the specialist lending market is to stay relevant and continue to grow, it must target these consumer groups left behind by the big high street lenders. But specialists and brokers need to be smart – they need to identify segments and adjust their prices to make their offers truly compelling. It’s not enough simply to offer mortgages to people struggling to get a standard high product –
lenders need to adapt by further increasing their opportunity and relevance for consumers, by giving multiple options through innovative solutions, and ultimately, a desirable customer experience.