A new type of fintech company is helping home buyer owners save on their home loans, using technology to drive competition and take business from the big banks.
The differences between mortgage deals offered by the big four banks are hard to spot and even harder to work out when looking for a home loan deal, according to an investigation by the consumer watchdog, the ACCC (Australian Competition and Consumer Commission).
The watchdog says there are signs of “less-than-vigorous” price competition in Australia’s $1.75 trillion mortgage lending industry.
However, a group of startups are trying to change that. A number of property-related fintechs have lodged entries to this year’s Finnie awards by industry group FinTech Australia. Winners of the 2018 Finnies, the second year of awards, will be announced June 13.
Sydney-based HashChing is a free online marketplace which connects customers, whether they’re taking out a new loan or refinancing, directly with mortgage brokers who then negotiate better rates from lenders.
Borrowers can rate the services of their assigned mortgage broker using a star rating and review system similar to Uber and Airbnb. Users then look at this aggregated rating to help decide which broker to use.
Since launching in August 2015, HashChing has received more than $17 billion of home loan applications and helped more than 35,900 borrowers. In 2017 it also received a $100,000 Building Partnerships grant from Jobs for NSW.
“While other home loan comparison sites simply list the advertised deals that are available directly through banks, lenders and other financial institutions, HashChing does one better by listing the pre-negotiated deals that are available through those same lenders via mortgage brokers,” says HashChing chief operating officer Siobhan Hayden.
“The key difference is that banks offer more favourable wholesale rates to mortgage brokers than they do to customers, meaning borrowers are able to save tens of thousands of dollars over the life of their home loan.”
LoanDolphin, also based in Sydney, launched in February 2016 as a free home loan auction platform where verified brokers and direct bank lenders bid for refinancing or new property loans based on individual risk profiles.
Algorithms capture the customers’ risk profile, after the customer spends five minutes creating a profile, to enable tailored home loan offers.
“Bringing together different home loan rate products, and the function of bidding, typically creates downward pressure on home loans that are not advertised on other comparison sites or with lenders,” says LoanDolphin co-founder and CEO Ranin Mendis.
“This makes it very easy for the customer to get better rates and the best services for their mortgage.
“Generally, 80% of users would receive one or more bids with rates not advertised anywhere else in the market. This transparent and open market allows customers to get better home loan rates possible without stressing out.”
Adelaide-based Joust has developed a transparent and live home loan market-place.
On the Joust platform more than 20 lenders have the ability to bid multiple times based on a customers’ home loan profile in a reverse auction.
Since launching in June 2016, Joust has helped more than 2,000 customers across Australia and originated prime home loan opportunities of $990 million for local banks.
Prime home loan customers using Joust are achieving savings of about 0.85% percentage points when compared to comparison rates charged by the major Australian banks.
The average size of prime home loans being “jousted” is $490,000 and this equates to annual savings for borrowers of $4,165.
These savings, on the average seven year life of a home loan in Australia, equate to more than $28,000.
Joust managing director Mark Bevan pointed to the recent testimony by the Commonwealth Bank at the Royal Commission into financial services when it revealed that customers using brokers paid more.
“Joust removes the added cost burden represented by brokers and creates unrivalled competitive tension for consumers — all on the convenience of your mobile phone,” says Bevan.
Sydney-based Lendi, established in 2013, uses smart technology to search more than 2500 loan products from more than 35 lenders and create a shortlists of the best options for an individual’s unique financial circumstances.
Lendi has settled more than $5 billion in loans in the last 12 months. The company employs more than 250 people across offices in Sydney, Brisbane and Melbourne.
Analysis of more than 2,800 home loans settled by Lendi in the 12 months to November 2017 showed 79% of online borrowers selected a lender other than one of the big four banks.
And about 70% of Lendi’s users are refinancers switching to a better deal.
Based on a $440,000 mortgage, households could save up to $6,264 in the first year on their repayments by negotiating or switching lenders to get the best rate available, according to calculations by Lendi. That equates to $157,141 over the life of the loan.
“The home loan market has become incredibly complex and smart technology like ours is playing a bigger role,” says Lendi co-founder and managing director David Hyman.
“It simply is not possible to effectively assess the hundreds of data points on a borrower against the thousands of data points on the lenders without the help of AI (artificial intelligence).”
(Business Insider is the proud exclusive media partner for the 2018 Finnies, the annual Fintech Australia awards recognising leadership and innovation in the nation’s financial technology sector. We will be bringing you all the best stories from Finnie entrants and Australia’s fintech industry in the lead-up to the gala awards ceremony on June 13. Jobs for NSW is the presenting partner of the Finnies. Find out more here.)