Open banking is here: we take a look at the implications for landlords in Portsmouth and surrounding areas.
From 13th January 2018, the nine biggest banks will allow licensed competitors to have access to their customers’ banking data in order to make personal banking easier, more transparent and cheaper. Open banking looks set to have a remarkable impact on buy to let landlords and the mortgage market in general.
Open banking - what is it?
Open banking is an attempt by the CMA (Competitions and Markets Authority) to improve customer experience by making banking cheaper and more competitive. The initial focus is on some of the largest high street banks (HSBC, Lloyds, RBS, Barclays, Nationwide, Santander, Danske Bank, Allied Irish Bank and the Bank of Ireland) but the move will eventually force all major providers of financial services to make publicly available a standard set of APIs (application programming interfaces).
Open banking should not only make it easier for customers to switch banks and receive alerts if their account goes into the red but it also looks set to be a “market disruptor” that will revolutionise the way customers access financial products such as buy to let mortgages and insurance. Customers can choose to share their financial details, currently held by their bank, with other companies in order to gain access to better deals on mortgages, current accounts, insurance, broadband deals and more. Sceptics of the scheme have concerns about potential security problems but for enthusiasts, this new option will trigger a radical transformation of the world of banking. However, customers will be able to opt out of the system if they wish.
Once they have given their consent to their data being shared, their financial information can then be consolidated into third-party applications (eg a banking app) in a single consistent format. This revolution in the financial market has the potential to offer numerous advantages to customers: all their financial products will be gathered in one place together with integrated price comparison tools and they will gain insight into their spending patterns.
At present, most customers are tied to a single bank (just 3% of us switch bank accounts at present) but with open banking, they will be able to manage all their financial products from various providers via just one digital app and there will be no need to stay tied on to just one provider: for example, a cheaper overdraft could be offered from a different bank to the current account and just add money when the credit balance falls below a set limit. Open banking looks set to transform the banking market as both established brands and newcomers offer new products and personalised services.
How will open banking benefit landlords in Portsmouth?
By forcing banks to share customer’s data and bringing together the buyers and sellers of financial products, open banking looks set to revolutionise the way the world of finance and the increasingly professionalised sector of buying to let is likely to be one of the first areas where the impact of this sea change will be felt.
As private landlords respond to changes such as a rise in interest rates, the tapering of mortgage tax relief and an array of regulatory changes, the most successful are becoming increasingly professionalised and are searching for cheaper, speedier financing options as they seek to cut costs and maximise returns.
Once landlords have agreed that their data can be shared, information about their credit history and property portfolios can be packaged together so that potential lenders will be compelled to bid for the landlord’s business: in effect, mortgage providers will become a commodity item.
Traditionally, over 12,000 mortgage brokers have offered customers access to a limited selection of lenders. Due to a lack of scale and the expense of staff, these brokers have high associated costs and this has meant that landlords are at risk of missing out on the best buy to let mortgage offers.
New, technologically based finance solutions for the buy to let sector
In the current somewhat challenging buy to let market, private landlords who are eager to cut costs are likely to be early adopters of this new technologically based financial service.
Online brokers are emerging who will offer a digital service with a more extensive range of products and faster offers and a speedy and accurate comparison of mortgage offers from numerous providers tailored to the individual customer profile will be possible.
For a buy to let landlord, a new management platform for personal finance with all their accounts aggregated in one place will make it simpler to analyse their portfolio for current status, income and outgoings much more quickly and easily than can be achieved with a spreadsheet. In theory, the systems of various mortgage lenders will be able to communicate with one another as well as with the brokers’ systems.
Assuming consumers consent to their data being shared, the fact-finding stage of an assessment for mortgage affordability could become unnecessary as brokers’ platforms will be able to view a borrower’s financial details including current accounts, credit card accounts, mortgages, savings and loans. This would speed up the process of applying for a mortgage.
Applying for a mortgage could, in theory, be considerably accelerated as the broker’s platform will be able to view all a borrowers data from their mortgages and current accounts to their credit cards and loans, allowing the financial data of an individual landlord to be easily and quickly assessed without borrowers needing to produce numerous documents.
With a price comparison website combined with an aggregator, new bespoke, convenient ways of shopping around will be created, whether for buy to let mortgages, landlords’ insurance, accounting services or property inventories. Looking to the future, open banking will allow the finance requirements and credit histories of landlords to be matched up with lenders’ criteria, transforming the way financial products are sold.
Open banking - a key advantage for landlords?
Is banking undergoing a quiet revolution that will transform the financial marketplace? Only time will tell. Meanwhile, it is more important than ever for private landlords to keep abreast of changes in banking law that may give them a competitive edge in a challenging property market.