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Wealth Management

THE FUTURE OF MORTGAGES IN 2021 AND BEYOND

Francesca Carlesi, co-founder and CEO, Molo

 

2020 saw a paradigm shift in the mortgage market like never before. That shift is still very much underway this year, but before we get into that, it is important for us to note just what changed last year and how the COVID-19 pandemic facilitated it.

Like industries everywhere, the mortgage market was rocked by COVID-19. Customers needed online solutions that enabled them to carry on with some semblance of normality in their everyday lives.

This was just as relevant for the mortgage industry as any other. With increased demand for online solutions, mortgage providers obviously needed digital solutions that worked across any device, any day, and at any time. However, there were also less obvious fundamental changes behind the scenes as well: with critical parts of the mortgage decision process – such as property valuations – also needing to be digitised and made remote.

These changes coupled with new customer preferences meant that the ‘traditional’ way of getting a mortgage offline was very much under threat. At Molo, for example, we have seen a 70% increase in people over the age of 45 applying for mortgage loan offers compared to the first lockdown in March. The reason for this shift is apparent: people who were previously against an online mortgage (or resisted against it) felt that they had no alternative and gave it a shot.

Unsurprisingly, those who did end up taking the plunge and getting a mortgage online ended up being pleased with an overall faster and easier experience. Not to mention actually receiving a mortgage in a time where it was sometimes difficult to get an offer via more traditional routes.

 

The impact on the future

So what does that mean for 2021? Well the odds are that these changes are here to stay. Those who were able to successfully get a mortgage despite being bound to their homes, are far less likely to venture down to their local high-street and seek out a mortgage via more traditional in-person means the next time they need one.

While 2020 and the reasons outlined above might be remembered as the cause of mortgages going digital, it will most certainly not be the end. These changes are here to stay and will continue to shape the mortgage sector going forward.

 

Changes in habits

That said, now that we know what facilitated mortgages to continue and flourish during the pandemic, we can also start to assess the impact it had on our habits.

Over the past year we have observed a myriad of motivational changes for property investors. Now, more than ever, people are considering property as a safer investment for their money. With so much uncertainty and change going on around us, investors have taken to buy-to-let properties as an attractive alternative to the stock market or savings accounts.

According to Google Trends, the search ‘how to get a buy-to-let mortgage’ saw a 5000%+ increase in popularity over the last year and was classified as ‘breaking out’ by Google. And at Molo, we can confirm from our own data that there has been a significant increase in first-time buyers searching for a mortgage.

Interestingly, it wasn’t the only change in habits that we saw. While let-to-buy mortgages are by no means new, these too saw a change in the way consumers viewed them. With new ways of working from home and less commuting, we’ve seen an incredible growth in demand for let-to-buy mortgages that allow families from big cities to rent out their home in the city and move to the countryside to accommodate a more rural lifestyle. Making use of the countryside while they are not expected to be at a desk in London, Birmingham or Reading (the cities we’ve seen the biggest interest in) five times a week.

 

What this means for beyond 2021

The traditional, well-established regional split of property investment is very much under threat. And that is no bad thing! We’re seeing an investment shake-up across the UK.

Moving forward, we expect hotspots like London and the South East to continue high demand, but areas such as the North West also continued to surge in interest in 2020 and we cannot see why that would stop. In fact, we’ve seen demand in cities such as Blackburn grow twice as much as the average across the rest of the UK!

COVID-19 may have caused delays and issues for some mortgage lenders, but it has also been as bigger lesson as any that more digitally advanced propositions are less susceptible.

However, above all else, the last year has really demonstrated one thing in particular in the mortgage market: not only are online mortgages a feasible proposition, but they are also the best fit for customers today.

If a business has steps in place to digitise the front-end of the customer experience, and the requisite previsions to perform back-end tasks – such as credit decisioning and case assessment – digitally as well, then there really is no reason to return to slower, traditional ways of mortgage applications once the pandemic is over.

While predicting the future is impossible, one thing we can say for certain is; there has never been a more interesting time to be working in the mortgage industry.

 

Wealth Management

FROM EFFICIENCY TO NEW INVESTMENTS – WHY BLOCKCHAIN IS MORE THAN MEETS THE EYE

Thomas Borrel, chief product officer at Polymath

 

Blockchain has been an extremely hot topic in 2021. With companies and financial institutions internationally having to adapt to an increasingly digital world, the true potential of blockchain is becoming increasingly clear. We have seen hospitals using the technology to track vaccine distributions, major blue-chip companies floating digital assets or ‘stablecoins’, even progress made by central banks in piloting and adopting digital currencies

When it comes to the world of finance, much of the attention has focussed on the booming price of Bitcoin, and there has been much excitement around using cryptocurrencies as an alternative investment. However, the real potential of blockchain technology stretches far into traditional finance and beyond.

 

Improving access to investment options

Security tokens created and issued on the blockchain are already being used to improve efficiency in a variety of more traditional asset classes, ranging from real estate to green bonds. The Sustainable Digital Finance Alliance (SDFA) and HSBC Center of Sustainable Finance recently joined forces to highlight how security tokens for green bonds can reduce management costs and increase operational efficiency by up to ten times. And in early 2020, RedSwan CRE Marketplace tokenised $2.2B in commercial real estate, making it one of the biggest tokenisations we’ve seen so far.

Thomas Borrel

However, the potential of tokenisation does not only stand to improve the process of trading traditional assets; blockchain can also open up the pool of investors able to participate. To date, the focus has been on how fractionalisation brings benefits to retail investors by lowering the bar to entry. However, the retail regulations are still very stringent, which is important to protect non-professionals from disproportionate losses.

Tokenisation can be used to enable large institutional investors to buy into smaller projects. Referred to as aggregation, this process can be used to bind assets together so that they meet an institution’s minimum investment threshold. Because of the transparency of blockchain, the investor is still able to inspect each individual offering and ensure each element meets their quality and risk requirements, but by packaging it into one larger token, an institution can diversify with assets that would have otherwise flown under its radar.

 

Optimising efficiency and minimising risk

Risk management and operational efficiency are usually at the core of any financial institution’s wider strategy. However, no matter how much firms optimise their own processes, there are a range of financial instruments that are still very prone to issues in these areas, especially those that are traded ‘over the counter’ (OTC). The best example of this is likely the bonds market – a multi trillion-dollar market, where OTC trades are still common practice.

When an OTC trade is conducted, it is often so over the telephone – one person calling another to make a deal. This introduces significant information risk with securities operations teams reporting error rates as high as 40%. When instructions for the trade are passed on to the custodians, they will spot the discrepancy. They then have to investigate and find out what has gone wrong, often resulting in very long delays to settlement times.

Blockchains go a long way to solving this problem, providing transparent access to trade and clearing information so that operational issues can be caught earlier and help mitigate settlement risk (i.e. settlement failure). For example, on Polymesh settlement instructions must be affirmed prior to settlement, in a case where an OTC trade has been improperly captured by one counterparty, the counterparty which has affirmed the instruction can see that the other counterparty has not affirmed the instruction within a defined period. In this way, the affirming counterparty can reach out proactively prior to the settlement date to rectify the situation and avoid settlement failure.

Trading on blockchain also generates an easily accessible, secure ledger of trading information. When it comes to reporting in traditional asset classes, the process is highly manual and often expensive. But, with a blockchain solution, reporting is built into the ecosystem from the ground up. There are no significant additional costs or resources required to extract this data and share it where necessary, and the number and complexity of the steps required to complete reconciliations between different entities are reduced and simplified.

 

Is tokenisation a ‘cover all’ solution?

Fundamentally, certain traditional asset classes are not right for the blockchain yet. Instruments with well-established frameworks, like publicly traded stocks, already have very well-formed, rigorous rails in place, and so transferring to a blockchain could cause disruption and incur unnecessary costs.

It is very common to hear blockchain advocates claiming that blockchain technology should be introduced into every corner of the finance space, which is misguided. Blockchain should be introduced where it brings value to investors or institutions. It should be about augmenting and supplementing the marketplace – not overhauling it, or at least not until the incumbent systems no longer keep up with demand.

The costs and infrastructure associated with capital markets have made some assets – like green bonds or real estate – too expensive to bring to market and service, or too difficult to invest in. These use-cases are examples of where tokenisation can really shine.

Blockchain is an extremely powerful tool, with a range of exciting applications and potential benefits for businesses and financial institutions, ranging from risk management and efficiency through to enabling new investments. However, as with any product, it isn’t the answer to all problems, and must be treated as a powerful enabler – not as an agitator.

 

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TRADING ROOMS OF THE FUTURE – IPC’S OUTLOOK FOR 2021

By Craig Campestre, Chief Revenue Officer, IPC

 

The Covid-19 pandemic did not just affect our clients. As soon as the virus started to spread around the world and lockdowns started to come into place, it became apparent here at IPC that we would need to implement our own business continuity plan and work from home strategies. All of this had to take place on an incredibly tight timescale and to an unprecedented extent. We had to react and adapt faster than ever before in order to help our clients prepare for lockdown. There was a need to manage supply chains, gather client feedback, and produce updates for our products with increased levels of accuracy, clarity, and efficiency.

During these challenging times, market participants have done an excellent job in moving quickly to make sure that their systems remain stable and resilient. The fact that the markets have remained open throughout this period is a testament to their great work.

Now though, it is time for us all to look ahead and see what the future holds for the trading industry.

 

How the industry is evolving

Prior to the pandemic, the trading room was starting to change. Regulatory requirements such as MiFID II, a piece of legislative framework designed to regulate financial markets and improve protections for investors, had resulted in the transformation of workflows on the trading floor. There is now a real necessity for telephonic communications to be integrated with trading technology in order to gain actionable insights from conversations.

We have also noticed that a new trend has emerged – traders are now starting to consume multiple applications from just one terminal. As a result of this, data is being shared organically between the applications.

Trading desks are also striving for increased productivity. Using AI-powered natural language processing (NLP) tools, trading firms are able to strive for swifter execution, better communications, and smooth-running reporting processes and settlements. All in all, this leads to an overall increase in efficiency.

Additionally, there are numerous areas across trading floors where NLP will be used in the coming years. It will enable traders to voice populate applications and forms on their desktops, while NLP will also allow for heads of trading desks to search through structured sets of data, enabling them to reconstruct trades instead of having to manually listen to numerous audio files.

With hundreds of millions of voice quotes being generated around the world every day, it is vital that this market data is unlocked, and that future trading floors are equipped with the necessary voice communication tools to allow them to conduct better analysis and automate their workflows.

 

Global growth and the FX market

Traditional trading hubs, such as the US, the UK, Japan and Hong Kong are still facilitating most of the foreign exchange (FX) market trading. However, in recent years trading hubs from emerging markets are starting to come to the fore. For example, China is making great inroads, evidenced by the country being ranked as the 8th largest FX trading center, per the 2019 BIS triennial survey.

The Asia-Pacific region has long been viewed as a growing market. Even before the pandemic, trading firms operating in this region had already faced a crisis and were impacted by a major geopolitical event – the 2019-20 Hong Kong protests. The protests meant that traders in the region were forced to adjust their trading activities and working practices. As such, these trading firms were able to use the experience gained from having to suddenly pivot and roll out their business continuity plans to help financial companies around the rest of the world when lockdowns came into effect due to the pandemic.

Adding to this, it is important to consider the impact that current geopolitical events may have on global growth over the coming years. Brexit and the increased economic tension between China and the US, as well as Covid-19, all have the potential to have a major impact on global growth. Due to these geopolitical events, we may observe a shift in the location of trading activities, which may begin taking place in locations that are, presently, not thought of as global trading hubs.

 

How IPC can help

The global markets are continuously changing and evolving. As such, it is vital for market participants to remain on the edge of innovation.

Here at IPC, we are constantly assessing what needs to be done to enable the development of the trading room of the future. This includes bringing voice communication services fully into electronic trading environments. By doing this, it will allow for greater integration with data sources, trading technologies and electronic workflows. In places where we have voice products that function using legacy infrastructure, we are in the process of modernizing the underlying technologies.

 

In summary

It is clear to see that the trading industry was in the midst of an evolution prior to the pandemic. However, this transformation has definitely been accelerated by the events of the past year, with companies having to quickly adapt to the ever-changing circumstances. This process is likely to continue into 2021 and beyond, with new and improved products continuing to enter the marketplace. Looking to the future, it is vital that financial market participants maintain their resilience and maintain their innovative edge.

 

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