It is estimated that the UK has about 17 million millennials, broadly defined as people reaching young adulthood early in the 21st century. They now make up more than a quarter of the population, second only to baby boomers. And of course, the gap is narrowing all the time.
For banks, this generational changing of the guard presents both opportunities and challenges. Nowhere is this blend more evident than in the mortgage market an area where banks have to meet ever-changing needs and expectations.
So, how can banks cut through the challenges to capture a bigger share of millennial mortgages? To answer this question, we’ve teamed up with postgraduate students at Imperial College London to run a unique research programme.
Our shared hypothesis was that behavioural economic nudges could be the key to increasing millennials’ propensity to buy a particular mortgage from a particular bank. To test it out, our joint team began by conducting a questionnaire-led survey among 18-34-year olds about their views on mortgages.
The findings were then used to build prototype products that were presented as options to two groups of millennials, both of whom were provided beforehand with some factual information about mortgages. However, one group the “control” group were given just a simple question, while the “non-control” group were primed in various ways to test the behavioural economic nudge, including watching an educational video before making a choice.
What did we find out? In our survey titled “How can Traditional Banks Win Millennials in the Digital Mortgage Journey,” the findings point to three critical areas of interest, all with major implications for banks active in the mortgage market. The results that follow are from this survey completed in July of 2019.
1. Get involved early in the end-to-end mortgage journey
First, there’s a long gap between the point where millennials think about getting a mortgage often because of a life event “trigger” such as starting a new job, getting married or becoming a parent and the point where the bank realises that the customer is thinking about a mortgage and saving up for a deposit. The bank’s first inkling is usually when the customer submits an Application in Principle (AIP), the first formal event where they actually share their details with the bank.
The challenge facing banks is to close the gap between initial intention and AIP by linking the two concepts of saving and mortgage more closely. The Help-to-Buy ISA was the government’s answer. But there’s a clear opportunity for banks to do more to reinforce this linkage, perhaps by raising the topic of mortgage options during conversations about savings, and engaging with customers in the “new channels” of their choice.
Our findings underline the link between saving and seeking a mortgage and suggest this correlation actually goes well beyond the traditional “triggers”. Some 87.5% of our millennial respondents said they would plan to save for a deposit and when choosing between two different banks, 93.8% would choose the one with a mortgage-linked savings offering. Perhaps most tellingly, 89.52% would like to be notified proactively of their status regarding the mortgage amount they’re eligible for.
2. Help to close the mortgage information gap
Second, there’s a significant gap in millennials’ knowledge about mortgages one that they’re eager to fill, with 87% of respondents telling us they’re keen to learn more about mortgages before applying to a bank for one. But they feel banks are currently failing to meet this need for information, with only 32% professing themselves “satisfied” with the information available about mortgages from banks.
Our study also showed that providing millennials with additional education about mortgages can change the components they focus on in the decision-making process thereby helping them to make a more informed and personal choice. Survey participants who’d been provided with more detailed information on mortgages focused more on components like product fees and repayment charges, moving away from more commonly-known terms like cashback and interest rates.
3. Major on peer reviews not sales pitches
Third, while millennials would like banks to provide more information about mortgages in general, they’re less keen to turn to them for advice on specific products. Their top source of guidance about a mortgage was “suggestions from family and friends” at 91%. Other popular options included “reviews from previous customers on official websites” at 90%, and “open discussions from external forums” at 83% both ahead of “recommendations from bank advisers” at 78%.
The implication is that millennials trust other customers’ choices more than their bank’s recommendations and that if banks introduced or displayed reviews from other customers, these could heavily influence their mortgage decisions. When they were unclear about a choice of mortgage product, 76% said they would choose the most popular, while only 42% would go with the bank-recommended one. All of this suggests that for banks it’s less a matter of closing the mortgage information gap, and more about putting the emphasis on self-service education as opposed to traditional product advice.
Looking through a “millennial lens”
In my view, the message is clear: banks are missing a major opportunity in the mortgage market and should review their approach from a millennial’s-eye view as a matter of urgency. While fine-tuning is needed throughout the mortgage journey, the required changes could be made at relatively high speed and low cost.
According to our research, the recipe for success in millennial mortgages is: engage early in the right channels, provide information, and offer customer reviews. Get all this right, and you’ll not only sell more mortgages, you’ll also build trust by engaging more deeply with millennial customers. In the long run, that could prove to be the most valuable outcome of all.
My thanks to the the Millennial Mortgages joint research team. From Imperial College: Anushka Bathija, Shahd A Omari, Xiyu Cheng, Yibo Pang and Wenxi Yang. From Accenture: Rebecca Price, Ugam Sheth and Roneeta Gupta.
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