Mortgages are characterized by their complexity. While consumers start the search for their dream home, mortgage lenders are more interested in fixed-interest instalments, annuity, and interest fines. The complex nature of the mortgage application process means that very few Dutch people acquire mortgages without the help of an advisor. The number of execution-only mortgages that are taken out independently by consumers in the Netherlands is still only around 1%.
For the consumer, house hunting has one clearly defined goal: finding the dream home. A dream home isn’t necessarily about location or price. More than anything, a home is where the consumer will experience precious life moments. Marriage, children, and aging are traditional parts of life that follow buying a home. However, taking out a mortgage often reduces these dreams to an afterthought as the frantic process of understanding the esoteric mortgage landscape begins.
It is remarkable that a product that is the gateway to so many personal milestones is offered so methodically. In the Netherlands there are just under fifty mortgage labels and their defining characteristics often boil down to low interest rates and the absence of interest fines. Mortgage expectations and current offerings are thus different worlds which are difficult to reconcile. Change is around the corner though. A prime example is the pressure currently felt by the product-centric status quo of the banking sector, brought about by the emergence of digital-only banks that offer innovative customer experiences.
In the banking sector, there has been a clear shift from offering static financial products to instead offering dynamic customer experiences in recent years. A good example is the traditional savings account. With an online-only bank like N26 you don’t transfer money from a checking account to a savings account. Instead, you save step-by-step for personal spending goals. You can name your savings account things like “Machu Picchu” or “Designer bag”, depending on what you’re saving up for. The goal of saving is in this case not simply to save, but to enjoy life. Fintechs understand this and are grabbing a sizeable market share from traditional banks by getting under the skin of their customers and their spending behavior.
A recent report by Hyarchis on tech trends in the mortgage market illustrates that the proposition of most fintechs is not innovative. Their product portfolio is a stripped-down version of the financial products that you also find with traditional banks. The only difference is that with their digital-only proposition, they seamlessly meet the needs of a generation that grew up in the digital age. Likewise, they help customers not to hoard money, but to achieve their dreams. Revolut does this, for example, through integrated budgeting options to prevent excessive spending and N26 does this by transferring a percentage of each transaction to one of these custom saving pots.
We asked Adriaan Hoogduijn, COO of Hyarchis, whether this trend will have a similar impact in the mortgage sector. Adriaan says: “Digital-only banks don’t really see themselves as banks, just as Uber does not see itself as a taxi company. Digital-only banks are simply technology companies with a banking license. The latter is confirmed by the people they hire. For example, Revolut has more than 2,300 employees among which you’ll find no bankers but more than 1,000 software developers ”.
Looking to the future, Adriaan says: “The conversation in the financial world is still about the digital transformation, but the real news is that digital companies are making the transition to financial services. UK-based Habito is an inspiring example of this. Since their inception in 2016, they have provided more than €5 billion in mortgages, but you’ll struggle to find the word ‘interest’ on their website. They are all about helping their customers find a home as easily as possible. Yes, financing is still necessary, but that should never stand between a customer and their dream home. In the Netherlands, the wait continues for a provider that dedicates as much attention to the customer journey as seen with counterparts in the UK”.