What does the pandemic mean for mortgages?

  • Chris Monaghan, Partner |

3 mins read

The tightening of COVID-19 restrictions is hitting many businesses hard. But what does it mean for mortgage lenders? With the UK economy in recession and uncertainty over jobs, could we see interest in house buying, and selling, fall? And beyond demand, how has the experience of the pandemic changed customer expectations for how they research, apply for and complete a mortgage?

We recently conducted a survey of 2,250 KPMG professionals in Australia, Canada and the UK to help mortgage lenders understand the evolving market and win the fight for customers.

Understanding the mass affluent market

In the report, we focus on the mass affluent market – that’s professionals with annual incomes of $60,000 to $500,000 (approximately, £46,000 to £385,000). They constitute a third of all income earners. And they’re particularly attractive to lenders due to their future income and asset accumulation potential. In turbulent economic times, they may also represent less of a risk than other potential home buyers.

It’s likely that for many of these professionals, the lockdown provided a pause for thought about what they wanted from a home. Suddenly, access to green spaces and larger homes became far more attractive than being at the heart of the city or town. And for some, at least, the UK stamp duty holiday on properties up to £500,000 is a financial incentive to move despite economic uncertainty.

So, while the current environment is dissuading some from making a purchase, others are moving ahead undeterred – and some are looking to move ahead even faster to take advantage of preferential interest rates. Among our mass affluent market in the UK, 46 percent expected a delay to their purchase timeline. But 45 percent expected no impact, while 8 percent were looking to accelerate their purchase.

Understanding the needs and expectations of this customer segment will be important to the success of mortgage lenders. Here are three trends you should have in mind.

Customers are happy to shop around

You can’t bank on inertia keeping your customers with you – not anymore. When asked how frequently they renegotiate interest rates or switch banks, just 1 percent said at least once a year. Following the onset of COVID-19, 28 percent said they’ll renegotiate or switch at least once a year.

The mass affluent market won’t look to you for a mortgage just because they’re already a customer of yours. Over a quarter (27 percent) opted for a financial institution they hadn’t used before. Most (49%) went through a broker. Why? Because they believe that by looking across different lenders, the broker can get them a better deal. And because they think a broker can make the whole process easier. That said, almost a quarter (24 percent) went with a financial institution they already had a relationship with.

When they do look to agree a new mortgage or renegotiate an existing one, price is key. In the UK, 99 percent identified competitive interest rates as an essential mortgage factor and 66 percent competitive fees. The ability to vary payments was also a key consideration for UK borrowers. 

Digital is the channel of choice

Customer experience has a huge part to play too, though – especially in a post-pandemic world where people have got more and more used to doing things online rather than in person.

When it comes to researching different mortgage products, applying for a mortgage and servicing the loan post drawdown, the mass affluent market favours digital. Our survey found that was especially true in the UK, with 94 percent adopting digital for researching and 87 percent for servicing.

While a good proportion still prefer to apply for a mortgage in person at a local branch, there has been a definite decline in demand for in-person service. That’s a trend we might have expected anyway, but it’s one that has no doubt been accelerated by the need to socially distance. 

Customers want your understanding

You might have already read about the six pillars we’ve identified as defining a great customer experience (if not, take a look at the KPMG Nunwood 2020 CEE report). They are personalisation, integrity, expectations, resolution, time and effort; and empathy. To deliver an outstanding experience, you need to excel at all six. But our survey found that understanding the customer’s circumstances to drive a deep rapport (empathy) and the ability to turn a poor experience into a great one (resolution) are considered the most important.

That’s worth taking note of – particularly because empathy was where one of the biggest gaps between desired and actual customer experience was considered to exist.

For more insights on the mass affluent market and tips on how you can drive retention and growth, please read our new report: The evolving mortgage market.

And if you have any questions, please do contact me.

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