Mortgage rates jumped sharply in March following the US airstrikes on Iran. Since then, borrowers have borne the brunt of the conflict’s knock-on effects, with sharp increases in costs and many new mortgage deals being withdrawn almost overnight. But this volatile environment has major implications for lenders too.
As interest rates climb, underwriting criteria become stricter, and lenders will be looking to mitigate the risk of higher default rates while simultaneously seeking ways to reduce transactional due diligence costs. There is likely to be increased competition in the sector for “tier one” borrowers with strong credit scores, low debts and stable incomes or strong revenue streams who are best placed to weather the impact.
Streamlining transactional processes while ensuring robust checks have been made and protections are place for borrowers and lenders is vital to getting deals over the line. And while strategies to appeal to high-quality borrowers include offering them better loan terms such as more competitive interest rates or higher loan-to-value (LTV) ratios, lenders should not overlook the importance of providing a smooth customer experience as a selling point. Obtaining title insurance policies quickly and easily is one way to achieve all these goals.
The importance of title protection
Putting title insurance in place is important at any time because such policies protect both buyers and lenders against the risk of legal or financial claims related to the property that could jeopardise the transaction or create problems in the future. But it’s even more critical at times like these when rising borrowing costs are raising the risk of distress occurring in the market.
An increase in distressed loans can make the title due diligence process extremely difficult, if not impossible, so in such scenarios, obtaining title insurance can solve the problem: replacing due diligence processes and facilitating faster sales.
And yet, providing title policies can itself be challenging thanks to burdensome manual processes and difficulties in searching legacy systems for information, resulting in extended timescales, inaccurate findings and/or high costs.
However, it doesn’t have to be this way.
Removing roadblocks
Real estate transactions can “begin better” by deploying technology to automate title policy creation. We created Incept to revolutionise this process. Our algorithm-driven platform is designed to automatically extract property title data direct from the Land Registry’s databases in real time. It then instantly generates policies that cover all risks, whether for single properties or entire portfolios of real estate assets, underwritten by leading risk management solutions provider, Fortegra.
Avoiding this roadblock can accelerate property deals, resulting in a less stressful experience for borrowers, and acting as a competitive differentiator for lenders, who can also reduce their due diligence costs and transfer risk in a more meaningful way. It’s win-win.
Getting deals over the line in a challenging market
Of course, the headline interest rates offered by lenders still matter – but so too does the overall service they provide. Borrowers that are well-supported during the transaction process are likely to see their property purchases complete, and to feel increased customer satisfaction and brand loyalty that lasts, so those tier-one customers are more likely to return next time they need to remortgage.
Bank of England data show that the UK housing market was slowing even before the latest rates hike, when interest rates were widely expected to fall. The current geopolitical situation won’t help. The bottom line is: it pays for lenders to expedite the (often lengthy) transactional due diligence process and make it easy for deals to go through. Automated title insurance can help them do just that. In today’s challenging market, that’s certainly worth thinking about.