Blockchain seems to be one of the buzzwords of the moment. It started its life in the public eye as the technology that underpinned the bitcoin revolution but is now being linked with a myriad of potential uses including smart card payments, online voting, tax payments and, encouragingly for me, mortgages.
Whilst I’m no techie, I do love how new technology can positively change our lives and of course, as part of Atom bank, I’m a big fan of all things digital. That said, it’s taken me a little while to get my head around blockchain, but here’s my take on what it is and how it can benefit the world of mortgages.
What is it exactly?
In its simplest terms, (sorry techies for the lay description), a blockchain is a shared and continuously reconciled database. Transactions are recorded and validated by independent entities so that the data can be shared between multiple parties at the same time. The database itself is digital which means it is secure and robust – it isn’t owned by one party in the chain so can’t be tampered with or taken away. Transactions in blockchain are stored in a structure called ‘blocks’ - each block is timestamped and linked to a previous block so it can’t be amended or corrupted. If the transaction needs to be updated, it creates a new record linked to the old one. A blockchain retains the complete history of all transactions and instructions executed since the first - ensuring the content is independently auditable and verifiable. This type of database works really well for financial transactions, especially payments such as bitcoin, where two or more parties can share information about a transaction in a safe environment with the added benefit of real-time access that digital makes possible.
Phew, not so bad hey! But how do we apply this to mortgages?
I don’t think it’s too tricky to see how this could work in mortgages. If you break it down, the whole process of buying a house or remortgaging is essentially the transfer of ownership via a transaction; whether between two parties (the buyer and seller) or between two lenders in a remortgage. The key is having one version of the truth that all parties sign up to and can access at the same time. This could start right at the beginning of the application stage. For example, imagine a customer who wants to apply for a remortgage. The customer’s current mortgage is with ABC lender, their current account is with XYZ bank and they give their permission for their intermediary and proposed new lender to access the data they need from the existing parties. This would mean the existing lender could share the current mortgage status and redemption figures, the existing bank could share the income and expenditure relating to the customer’s current account, and the intermediary could share their KYC data so the new lender wouldn’t need to ask for ID&V, bank statements or redemption information as part of the application.
Taking it further
We can take this a step further, into the valuation process. There is already a huge amount of data about a property online. From historic price data to local flood information to comparable price statistics, valuers are already using electronic data sources to augment their physical valuation. These data points could be readily uploaded and accessed via a shared blockchain ledger between the trusted parties who needed them. If you wanted to be really futuristic, you could add in the possibilities that will come from the internet of things – physical devices with internet connectivity that can collect and exchange data. This could tell you the current state of a property, how energy efficient it is or even what white goods are in situ.
The most exciting piece of the blockchain mortgages story for me is in the conveyancing process. This is currently the longest and most arduous part of the mortgage journey. The whole process of searches, land registry, title checks and signing of contracts takes a huge amount of time and feels like a bit of a black hole. No matter how good your conveyancer is, it’s generally not a part of the journey that many customers look forward to and the costs are usually underestimated. Why can’t we use blockchain to make this easier? Surely the searches could be maintained and updated in a digital format? Local authorities have to keep their records up to date with plans for motorway upgrades or applications for fracking, so surely this means they could be stored in a digital vault. Environmental searches are provided by a small number of specialist providers and again, there doesn’t seem to be any reason why these can’t be maintained in a digital format. Even the land registry documents are largely held online these days and with the implementation of digital signatures by HMRC and Land Registry, paper titles could soon become a thing of the past. This all points to a future where the majority of house transaction data could be accessed via a blockchain.
The future; blockchain boosted mortgage journeys
When you add these bits of the chain together, it’s easy to visualise a mortgage journey which goes from application to completion in a number of days rather than weeks or months. This could radically change the experience that a customer has to go through not to mention the amount of time, cost and friction that could be removed from the process. So, could this mean a world where house transactions are easier, safer and more transparent for the customer? I think it does and can’t wait to see it become a reality.