Introduction to Intelligent Affordability: Exploring the concept and its importance in the UK mortgage lending landscape

For many aspiring homeowners in the UK, obtaining a perfect mortgage can feel like an intricate pattern of endless convolutions. Traditionally, affordability assessments rely on a uniform, one-size-fits-all approach, often leaving borrowers puzzled about their true financial capacity. Affordability assessment is one of the more nuanced, time-consuming, and rigorous aspects of the mortgage origination process, most often leading to loan rejections (Dondo, 2022). This is where and why Intelligent Affordability comes into play.

What is Intelligent Affordability?

Intelligent Affordability leverages Artificial Intelligence (AI) and Machine Learning (ML) to create a much more nuanced assessment of a borrower’s capabilities to repay the mortgage. Instead of encompassing a traditional approach of analysing factors like income and credit score, it further explores other aspects like:

• • Spending Habits: Artificial intelligence can analyse bank statements to comprehend a borrower’s spending patterns, for example, it can pick up gambling and betting evidence on a bank statement, allowing the lender to coherently understand the borrower’s habits.
• • Debt Management: AI can give a clear picture of how effectively a borrower is managing existing debts, giving the lender an evaluation of their ability to handle additional financial obligations.
• • Fraud Detection: AI can observe and analyse spending patterns and identify unusual transactions and activities. This helps lenders by flagging potential fraudulent applications and attempts at money laundering.

Why is it important in the UK?

Rising interest rates and inflation are making it more expensive to borrow money which is having a knock-on effect on the housing market ( Brookfield Finance, 2023 ). The UK mortgage lending landscape faces several challenges:

• Affordability Crisis: Skyrocketing house prices combined with stagnant wages are continuously making it harder for many to qualify for mortgages. This is also known as the ‘UK housing crisis’. In recent decades the cost of buying a home has risen faster than wages, leaving many workers priced out of the market (McMullan et al. 2021 ).

• Static Assessments: Traditional uniform, one-size-fits-all approaches overlook individual circumstances, potentially excluding borrowers who might be financially sound despite not fitting a specific and rigid criterion.

• Need for Innovation: With an ever-growing and ever-evolving market, lenders are constantly seeking for ways to improve their efficiency and cater to a wider segment of borrowers.

• Excessive Time Taken: Applicants and brokers are often unaware of the application process and documents required which leads to enormous amounts of back and forth, this increases the duration of the process causing frustration among borrowers.

• Stronger Relationships, Faster Approvals: Intelligent affordability streamlines the application process by automating tasks, essentially reducing back and forth between borrowers, brokers, and processors, which enhances customer relationships.

Intelligent Affordability offers solutions to these challenges:

• AI enables responsible lending by providing more coherent evaluations of affordability to lenders. This enables them to cater to a wider pool of borrowers, enhancing financial inclusivity.

• AI promotes financial stability by helping borrowers to obtain a clear view of their financial capabilities and make sound financial decisions, reducing the risk of defaults.

• AI streamlines the application process by automating tedious tasks of the loan origination process, making the process faster and more efficient for the lender and borrowers.

• AI offers real time income and expense for the borrower which reduces room for error and gives an accurate picture of the borrowers profile to the lender.

The future of mortgage lending: Digilytics AI

Digilytics’ intelligent affordability solution, Revel, is at the forefront of this revolution.

It offers key technological advancements in the world of mortgage lending:

• Revel’s algorithms are constantly learning and evolving, enhancing the accuracy of affordability assessments.

• Revel streamlines the application process. It offers ‘First Time Right Application’ packs, reducing processing times and manual workload for underwriters.

• Revel improves application experience by personalising the process and providing customised, tailor-made platform based on each lender's unique requirements.

• Revel reduces average time taken to manually compute income by automating the entire process with its technology.

The Road Ahead: Future for UK Homeownership

The adoption of intelligent affordability in the UK mortgage landscape requires collective effort from lenders, regulators and technological providers. Transparency and responsible AI use are crucial to ensure trust in the system. Digilytics prioritises ethical practices and adherence to to data protection regulations. It has the potential to create a more inclusive and extremely efficient mortgage lending environment in the UK. By providing lenders with a deeper understanding of borrower’s financial capacity and enhancing responsible lending practices, Revel is paving the way for more individuals to unlock the door to their dream homes.

Author: Jahnavi Chhabra, Business Analyst at Digilytics AI

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