More Australians are choosing digital banks over local branches for their home loan needs.
These digital-first financial institutions, often called neobanks, are disrupting traditional banking by offering services like mortgages, savings, and checking accounts exclusively online.
Digital home loans offer a fully mobile mortgage application experience, accessible entirely through a smartphone app. This streamlined approach eliminates the traditional complexities of extensive paperwork, document submission, and lengthy lender approval wait times.
The traditional home loan process is being disrupted by digital providers who are harnessing technology to streamline approvals. By incorporating innovations such as Open Banking, two-factor authentication, and automated algorithms, these lenders are able to accelerate decision-making and simplify the overall experience.
A prime example is Unloan, Commonwealth Bank’s digital platform, which enables customers to apply for a loan in minutes. In addition to providing on-demand access to home loan experts, Unloan distinguishes itself by waiving a range of fees, encompassing application, banking, account, and exit charges.
Likewise, Mortgage Choice Freedom combines the convenience of digital applications with the flexibility of human support. Users have the option to speak with a broker throughout the process, ensuring personalized assistance when needed. Additionally, the platform offers the ability to switch options, providing more choice and adaptability for those seeking a tailored solution.
Reducing expenses
With the ongoing closure of regional bank branches, digital-only banks, or neobanks, are carving a niche by offering competitive home loan rates. Freed from the operational costs of maintaining physical locations, these banks can deliver better rates to their customers.
What differentiates neobanks is their approach to customer interaction. Instead of relying on in-person service, they provide an app-based experience that delivers detailed, real-time updates on financial activities. Users can track their spending habits and savings, often visualized through easy-to-understand graphs.
Studies reveal that neobanks are rapidly gaining popularity across Australia, with both city dwellers and those in regional areas opting for the convenience and flexibility of digital banking. The ability to secure a competitive home loan in more remote areas through these banks is a notable benefit.
Among the digital banks and lenders offering mortgage products in Australia are Athena, Tiimely Home, and Revolut. Additionally, UBank, following its merger with neobank 86 400, along with Loans.com.au, ING, and ME Bank, are other examples of online banks providing home loan options.
While neobanks are predicted to expand their reach in the next ten years, recent closures and consolidations, like Volt’s 2022 shutdown, highlight the importance of reliability and longevity for customers choosing a digital banking provider.
Growing in popularity
It’s clear that digital banks are becoming increasingly popular. With Australia ranking among the highest globally in smartphone usage, it’s a natural fit for consumers. According to Reviews.org, Australians spend an average of 5.5 hours per day on their phones, with Gen Z clocking in at around 7.3 hours. This makes digital banks particularly appealing to these tech-savvy users.
When choosing an online bank, security is a primary concern for many. Neobanks in Australia operate under the same regulatory framework as brick-and-mortar institutions, overseen by bodies like the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission. They also must possess an Australian Financial Services License.
Attractive interest rates offered by neobanks can be tempting, but home buyers shouldn’t let them be the sole driver of their mortgage decision, according to independent finance expert Julian Finch.
Initial rates may seem appealing, but their competitiveness often diminishes over the loan’s lifespan. Experience suggests that lenders sometimes prioritize new customers, neglecting the needs of existing borrowers. Furthermore, these offerings often lack the comprehensive features and personalized support available from traditional banks.
Julian Finch explains that very few people qualify for home loans from neobanks, as these institutions usually deal with simple loan scenarios. He adds that the lack of application assistance means that mistakes, such as submitting irrelevant documents or information the lender dislikes, can often result in rejection.
He also points out that neobanks usually offer home loans for straightforward scenarios, and applicants often face rejection if they submit irrelevant information. He adds that qualifying for a digital loan is even more restrictive, as it requires a loan-to-value ratio under 80% and excludes individuals with alternative income sources like Centrelink, family tax benefits, or self-employment.
For numerous borrowers, brokers provide valuable assistance, offering access to a wider range of loan options, ongoing reviews, and expert management, while also helping to steer through the challenges of the loan application journey.
