Is robo advice and AI a threat or opportunity for the short term finance market?


Jonathan Newman Brightstone Law

Over the last few years, short term lenders have worked hard to position themselves as ‘specialists’ in a specialist finance market, offering tailored and bespoke loans for often complex and challenging property deals – no longer simple bridging finance.

Many short-term finance applicants would be rejected by robo-advice and AI systems, which are naturally designed for ‘vanilla’ loans, with fixed terms and conditions.  While this growing technology promises to speed up loan application times and improve process efficiencies, it should not replace mortgage advice, so often wrapped up with tax help and restructuring expertise.

Robo-advice and AI systems may appear to be a solution for the mainstream mortgage market, but it is questionable if the technology can adequately cater for all the nuances of a complex short-term loans. Instead, human intervention is required to get deals over the line. Intermediaries package loan applications that lenders will approve on a commercial basis and can advise on which lenders are more suitable for certain property deals e.g. based on speed of loan processing, cost and flexibility.

Intermediaries play a crucial role in the short-term finance market. They build relationships with lenders and borrowers and deliver good customer experiences to drive loyalty.  Lenders want repeat business and brokers are key to delivering this.

Jonathan Newman, Senior Partner at Brightstone Law commented:

“Short term lenders differ from the mainstream market because they offer flexibility on terms, which can’t be accommodated by A1 systems. Neither can algorithms replicate the trust and confidence built between lender and intermediary over years of successful trading. The best intermediaries know and understand the lenders lending culture and principle and what suits, even if an element may be outside standard criteria.

“Recent research shows that one in seven intermediaries see robo-advice as an opportunity, compared to almost six out of ten of lenders*. The study also reveals that one in five brokers were dubious about the technology behind robo-advice systems and saw risks in algorithms and automation not taking full account of an applicant’s circumstances and needs. Some lenders did raise concerns about these advice risks, but none said it would be a threat to the market. *(Source: Iress’ annual intermediary mortgage survey, 2018).

“It is also worth remembering where the regulatory trend is pointing. FCA have moved from execution only to advised transactions. The FCA see the need for advice in mortgage transactions.  To move product selection from skilled practitioner recommendation to automation, is a move in the opposite direction.

“Short-term lenders and intermediaries don’t want to sacrifice their provenance of specialism and rely on robo-advice and AI to process loan applications, when it works against them. They also don’t want their business controlled by technology experts, which have no experience in the finance and commercial/residential property markets.  We have to remember that AI is only as good as the people who are programming the software.

“I believe robo-advice and AI has a place in the mainstream mortgage market, but doesn’t fit short-term lending, where the deals are complex, involve significant sums and demand professional valuers, lawyers and intermediaries.  This technology is focused on ticking boxes with inflexible terms and conditions which is far removed from the environment I see today in the specialist finance market.”