Borrowers increasingly turning to online lenders

A new study of the 1 million-plus borrowers who used financial services comparison site Mozo found online lenders to be the most popular choice in 2018, particularly loans.com.au, UBank and ME.

Specifically, the study found a 7 percentage point rise in the number of Australians selecting online lenders in 2018, with such lenders accounting for 51 per cent of all home loan selections.

Smaller banks such as HSBC and Bank Australia accounted for 23 per cent of home loan selections on Mozo, while non-bank lenders rounded out the year with 11 per cent of selections.

The major banks, on the other hand, accounted for 15 per cent of selections last year, down from 21 per cent in the previous year.

Mozo director Kirsty Lamont said one in two home loans with rates below 4 per cent are being offered by online lenders, who are “aggressively undercutting the big banks”.

“What they lack in bank branches and tellers, online lenders make up for in value,” Mozo stated.

According to the comparison site, interest rates offered by online lenders are on average 0.22 per cent lower than the big four. The lowest average rate for a $400,000 basic home loan over 30 years with a major bank is 3.98 per cent, compared to the average rate of 3.67 per cent offered by an online lender.

This represents a difference of about $18,000 in total interest paid over the life of a loan.

However, Ms Lamont noted that borrowing from online lenders requires customers “to do more of the legwork [themselves]”.

She added that borrowers would have to be comfortable selecting a loan product without the advice of a mortgage broker, as well as completing the application process online.

Smaller and specialist lenders are expected to continue gaining market share this year, as small businesses, like consumers, increasingly turn to them following the fallout from the financial services royal commission, according to 50 per cent of the respondents to a finder.com.au RBA survey.

Recent ANZ Bank data showed that new mortgage issuance by non-bank lenders has risen by approximately 13 per cent over the year in the 2017–18 financial year, compared to 4.8 per cent growth for banks, taking the non-banks’ share of total housing debt from 6.6 per cent to 7.7 per cent.

ANZ economists Daniel Gradwell and Shaurya Mishra described the increase as a net positive, speculating that non-bank lenders “are making the most of their position outside of APRA’s regulatory net”.

Four separate analysis pieces from Deloitte, EY, KPMG and PwC noted that competition from non-major banks and non-bank lenders was having a marked impact on the big four banks’ market share and growth.

One firm even stated that “if non-banks continue to grow at this rate, regulators will need to keep a close eye on the implications for the system”.

Further, in its recent Structured Finance Outlook 2019 report, Standard & Poor’s said it expects the non-bank sector to “dominate” the issuance of new home loans this year as it continues to benefit from the change in lending standards among authorised deposit-taking institutions.  

The ratings agency observed that new issuance from the non-bank sector made up 60 per cent of the 2018 total, up from 31 per cent the previous year. 

[Related: Non-banks to ‘dominate’ in 2019: S&P]

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