Solving the home ownership equation with open banking

Forty-four per cent of Aussies plan to participate in the property market in the next five years, a rise from 35 per cent just six months ago. However, the process of becoming a home owner can be convoluted, confusing, and frustrating.

Many of the current mortgage requirements still involve archaic paper-based processes that do not reflect the increasing needs of borrowers and mortgage lenders.

The introduction of open banking – a system that provides third-party access to user permissions data through the use of application programming interfaces (APIs) – and electronic asset verification, however, has the potential to change all that by simplifying and streamlining the mortgage application and approval process.

This creates a winning scenario for everyone in the purchasing journey of real estate, including agents, brokers, and lenders – right through to the borrowers themselves.

A convoluted paper-based system

For the uninitiated, applying for a mortgage, and having it approved, is a long, complex process. Borrowers are asked to gather an array of documents and proof points necessary to assure lenders of their sound financial sounding and credit history and thus prove their ability to acquire the loan and meet the repayment obligations.

This application process typically involves gathering bank statements, credit card statements, asset statements, tax returns, and payslips among other essential documents.

The amount of information that is needed to satisfy a lender is more than you might think. A typical mortgage application can stretch to a whopping 500 pages.

The process is usually partly paper-based, scattered, and highly manual, which can be prone to error and misjudgement, with documents difficult to keep track of, challenging, and time-consuming to quantify, and slow to analyse. And, importantly for lenders, it makes estimating the borrower’s ability to pay for their mortgage less reliable.

Seamless electronic verification

This is where open banking and electronic asset verification can help.

Through open banking, access to real-time account and transaction data gathered directly from financial institutions means borrowers no longer need to go through the arduous process of manually gathering the correct documentation.

For lenders, this means gaining access to instant data and insights, surfacing the right information – saving you from having to sort through applications that are hundreds of pages long. Not only that, lenders receive more accurate and up-to-date information for data-based decision making. The process is reliable, accurate, and can help reduce fraud with its robust authentication and verification.

Leading open banking, data aggregation and analytics providers, for example, combine real-time data, data analytics, and summary calculation to offer an in-depth view of borrower’s assets and liabilities. This streamlines the mortgage application and approval process to help Australians become home owners.

Democratising home ownership and addressing financial hardship

Innovation in open banking and property technology (PropTech) is fuelling the democratisation of home ownership, which we believe is much needed in the current cost of living crisis. The Reserve Bank of Australia (RBA) recently announced that interest rates remain unchanged at 4.35 per cent for a fifth consecutive meeting and a global house pricing index showed Australian house prices are up 5 per cent on a year ago.

In December, open banking platform Envestnet | Yodlee (Yodlee) announced a combined partnership with mortgage broker Effi Technologies; Australia’s largest home builder Metricon; and mortgage broker Loan Gallery to allow Metricon customers to navigate interest rates, build up a deposit, and manage their personal finances to become a home owner sooner.

Open banking also has the ability to give banks and financial institutions a clear line of sight on the difficulties mortgage holders are facing and extend help before last choice options, like foreclosure, eventuate. It can also help address financial hardship in other ways, like refinancing, as open banking has the ability to speed up the process of getting people out of bad loans and into better ones.

More to come

Open banking is still in its relative infancy, having only launched in the banking sector in Australia in July 2020.

It is, however, continually permeating into new industries and use cases and its current and future impact on mortgage lending and home ownership cannot be overstated.

The real estate and property industry is at an exciting time in its trajectory, with new technologies democratising home ownership and shaking up the status quo.

This requires technology that fuels innovation and improves the experiences for all stakeholders involved, particularly the end user – the consumer.

Open banking certainly does that and the future is looking incredibly bright.

Taner Uzelakcil is the sales director - Australia and New Zealand at Envestnet | Yodlee