While not completely new, a greater number of banks and mortgage lenders are now using Open Banking as part of the underwriting process. Business Development Director, Jeni Browne, explains what it is and why mortgage lenders are using it.
What is Open Banking?
Very simply, Open Banking is a financial technology that allows lenders to view your banking transactions online. Mortgage lenders need to see your financial information when underwriting for due diligence purposes but historically asked for copies of your bank statements. Essentially, this is the paperless route for this process.
How does Opening Banking work?
When you apply for the mortgage, the lender will contact you directly (even if you’ve used a mortgage broker to submit your application). They will ask for permission to access your accounts online, using a secure link. You will always have to give explicit consent to a regulated app or website, so you have full control over who has access to what at all times. Granting Open Banking access is not something your broker or solicitor can do for you, as it’s your bank accounts.
What are the benefits of open banking?
There are three main benefits to using Open Banking when applying for a mortgage.
- Less paperwork: rather than printing out (or digging out) the necessary bank statements going back three or six months, the lender has access to everything they need online. Less hassle and paper for everyone involved!
- Speed up the process: as the lender can see all the financial information they should require, it’s reduced the chance of them asking for additional banking information. Ultimately, this saves everyone time and hassle, and will help your application progress more quickly.
- Lender due diligence: more a benefit for the lender, Open Banking makes it easier for them to complete all the necessary due diligence checks on your accounts. These checks include making sure you can actually afford the mortgage you’re applying for, and making sure you’re not laundering money (unfortunately they won’t just take your word for it).
Common concerns and faqs about Open Banking
Is Open Banking secure?
Arguably, Open Banking is one of the most secure ways you can share your financial information with mortgage lenders. The system uses bank-level security and is completely regulated, which means that only FCA (Financial Conduct Authority) regulated companies can use it. If you normally do your banking online, it’s just as secure; in fact, the system offers considerably more protection than emailing scans of bank statements!
How long can lenders access your accounts for?
It varies from lender to lender, but they’ll only ask for access for a set amount of time (a few months maximum); enough time for a lender to get the information they need to underwrite your mortgage. You are completely in control of who has access via Open Banking, so if all the checks are completed before the agreed time is up, you can retract permission from the lender easily.
What are lenders looking at?
Honestly, mortgage lenders are only looking for the information which is relevant to the mortgage application. Unless you’re spending so much at the supermarket that it could impact your ability to repay your mortgage, they don’t care about your weekly shop. They can see the same information they’d get from a printed bank statement, which you traditionally have to send.
Some of our clients have been concerned that lenders will look further back than the standard three month period and find something that would impede the application. In our experience, this hasn’t happened. The only situations where a lender may need to look back further than they’ve stated they will is, for example, when the credit file isn’t displaying an existing mortgage account and the lender needs to look further back to obtain proof of payments. Ultimately, the ability to do this then and there speeds up the process as it bypasses coming back to ask you for more documentation.
What type of accounts are used for open banking?
Any payment accounts that can be accessed online such as business current accounts, credit cards, e-money or personal accounts.
What regulations do providers have to follow?
Providers must comply with the rules of the FCA or European equivalent. You can check if a provider is registered with the Financial Conduct Authority here.
What happens if I use an unauthorised provider?
Using a third-party provider that isn’t regulated can’t give you the same level of protection against fraud.
Hopefully this has helped answer some of the burning questions about Open Banking. Currently, the majority of mortgage lenders are still using older methods to get the financial information they need; however, I don’t think it’ll be long before Open Banking is normal in the mortgage application process. And in my mind, anything that helps your mortgage application process more quickly is a good thing!
Remember, our expert teams are always on hand to answer your property finance questions, and help you get the most suitable deal available! We source mortgage finance for buy to let, holiday let and commercial properties, your own home and can also help with short-term bridging and development finance! Give us a call on 0345 345 6788 or email email@example.com today!
7th July 2021