Home loans: Ni­cola Field A look at re­verse auc­tion sites

If you need a mort­gage, an on­line site where len­ders bid against each other to win your busi­ness could pro­vide the right deal

Money Magazine Australia - - CONTENTS - STORY NI­COLA FIELD

The home loan in­dus­try is be­ing flipped on its head, with len­ders openly bid­ding against each other through on an on­line mar­ket­place to win a would-be bor­rower’s busi­ness. These so-called re­verse auc­tion sites are not es­pe­cially new but their num­ber is grow­ing. Mac­quarie Bank-backed Lendi led the charge in 2013, fol­lowed by Flon­gle and a range of other plat­forms, in­clud­ing HashChing, LoanDol­phin, Lodex and Joust. One of the new­est play­ers to en­ter the mar­ket, Loan­bid, opened its doors in March 2018.

The ba­sic prin­ci­ple of re­verse auc­tion sites is pretty straight­for­ward. Loan­bid part­ner Paul Dwyer says cus­tomers make one on­line ap­pli­ca­tion list­ing their de­tails and loan re­quire­ments. Bor­row­ers state whether they’re look­ing to buy a home or re­fi­nance an ex­ist­ing loan, nom­i­nate their pref­er­ence for a fixed or vari­able rate, and tick off their choice of fea­tures such as re­draw or off­set.

From here, len­ders and bro­kers as­sess the in­for­ma­tion pro­vided and en­ter into a vir­tual auc­tion, aim­ing to win your busi­ness with their best bid. All of­fers are shown on an on­line dash­board (len­ders can also see what the com­pe­ti­tion is of­fer­ing) and are ranked ac­cord­ing to the to­tal cost of the loan, with the low­est cost first.

“Bor­row­ers need to wait for just 48 hours for len­ders and bro­kers to come back to them with a loan best suited to their needs and fi­nan­cial sit­u­a­tion, with the bor­rower to choose the right loan,” says Dwyer. He says bor­row­ers are free to leave the process at any time, and there is no obli­ga­tion to ac­cept any of the loan bids.

It all sounds very ap­peal­ing – quick, ef­fort­less and seem­ingly with­out the need for a make-or-break visit to a bank man­ager. “We put the power of choice back in the hands of bor­row­ers, who can po­ten­tially ac­cess thou­sands of loans based on the in­for­ma­tion they pro­vide through an obli­ga­tion-free bid­ding process,” says Dwyer.

That may be the case but home loan auc­tion sites also ben­e­fit the lend­ing in­dus­try. As Dwyer notes, len­ders and bro­kers can tap into a source of live leads with­out any up­front cost. The ques­tion is, do home loan bor­row­ers come out on top?

The first thing to be aware of is that re­verse auc­tion sites do not deal with ev­ery lender. Just like mort­gage bro­kers, they typ­i­cally work with a panel of len­ders. As a guide, Joust lists 18 len­ders on its site, HashChing iden­ti­fies “ac­cess to 80+” len­ders and Lendi claims to work with 30 “ma­jor” len­ders. There’s a blend of some of the big banks as well as smaller len­ders but the en­tire mar­ket is not cov­ered. That said, mort­gage bro­kers can also bid for your home loan, so the choice of len­ders open to con­sumers can po­ten­tially be much broader than those di­rectly listed on each plat­form.

Credit score pro­tected

Us­ing a re­verse auc­tion site gen­er­ally comes at no cost to bor­row­ers be­cause, as with mort­gage bro­kers, the plat­form earns a com­mis­sion from len­ders. One ex­cep­tion is Flon­gle, which gives bor­row­ers the choice of pay­ing an up­front fee of $399 to post for a mort­gage, the idea be­ing that this elim­i­nates any bias as­so­ci­ated with com­mis­sions.

A strength of home loan auc­tion sites is that post­ing for a loan shouldn’t im­pact your credit score. Per­sonal de­tails are sub­mit­ted us­ing an iden­ti­fy­ing num­ber so

your name re­mains con­fi­den­tial. This pre­vents len­ders check­ing your credit rat­ing. By con­trast, when­ever you di­rectly ap­ply for a loan it’s recorded on your credit his­tory. Mul­ti­ple loan ap­pli­ca­tions can be a red flag for len­ders, who will ques­tion why you’ve needed to make more than one ap­pli­ca­tion. With­out con­cerns about pos­si­ble dam­age to your credit score, re­verse auc­tion sites can be a handy tool for a do-it-your­self home loan health check.

How­ever, this anonymity can also be a weak­ness. Once you’ve se­lected your pre­ferred loan, the auc­tion site passes your per­sonal in­for­ma­tion over to the win­ning lender to fi­nalise your ap­pli­ca­tion. It’s at this point, when the lender has a bet­ter un­der­stand­ing of your cir­cum­stances, that the deal can sour if it turns out you’re not so el­i­gi­ble for a su­per low rate af­ter all.

The like­li­hood that a loan with your win­ning bid­der falls through can hinge on the ac­cu­racy of the in­for­ma­tion you ini­tially pro­vide. But be­ing of­fered a de­cent rate in the first place can also de­pend on whether your cir­cum­stances fit cer­tain guide­lines. Joust, for in­stance, makes it clear that cus­tomers with a good credit score, a steady in­come and a min­i­mum of 20% equity or de­posit are its ideal cus­tomers. If your sit­u­a­tion is more com­plex – for ex­am­ple, you’re self-em­ployed, you need the help of a guar­an­tor to buy a home or you wish to hold the prop­erty in, say, a trust rather than in your own name – you may be bet­ter off speak­ing di­rectly with a lender or mort­gage bro­ker.

There’s also no get­ting around the fact that it still pays for bor­row­ers to do their home­work. “In­de­pen­dent of the ser­vice that con­sumers use to pur­chase their loan, they need to make sure the of­fer they are go­ing with is com­pet­i­tive and has the fea­tures and flex­i­bil­ity they need,” says Mitchell Wat­son, group man­ager, re­search and rat­ings, at Canstar.

Other fac­tors to con­sider

For ex­am­ple, a very ba­sic bor­rower de­scrip­tion posted with Lendi for a loan of $400,000 se­cured by a $500,000 prop­erty came up with some pre­lim­i­nary matches: Auswide with a rate of 3.59%, Bank of Syd­ney at 3.63% and Mac­quarie Bank at 3.79%. These are all good rates. But ac­cord­ing to Wat­son, the low­est vari­able rate based on sim­i­lar loan pa­ram­e­ters on Canstar’s data­base is a tiny 3.44% avail­able through Re­duce Home Loans.

But a low rate is just one as­pect to weigh up in your choice of home loan. “The cheap­est of­fer­ing may not al­ways be the best if it doesn’t come with the flex­i­bil­ity that you may need,” says Wat­son. And this is a po­ten­tial weak spot of re­verse auc­tion sites. They put the onus on con­sumers to work out the best loan for their sit­u­a­tion.

It’s on this score that James Sy­mond, CEO of Aussie Home Loans, of­fers a cau­tion­ary per­spec­tive. “In these days of tighter scru­tiny of lend­ing prac­tices, ma­jor len­ders are now more con­cerned about the va­lid­ity of loan ap­pli­ca­tions and com­pli­ance,” he says. “Many of these new plat­forms do not pass muster on both fronts.

“Con­sumers and len­ders de­mand face-to-face con­tact to en­sure loan ap­pli­ca­tions are to­tally le­git­i­mate, and that the loan meets the needs and as­pi­ra­tions of con­sumers.”

With­out a thor­ough un­der­stand­ing of dif­fer­ent loan op­tions and struc­tures, bor­row­ers re­ly­ing on a re­verse auc­tion site alone could opt for a home loan that’s not en­tirely suited to their cir­cum­stances.

The re­al­ity is that to­day’s home loan mar­ket is very com­pet­i­tive and, as a bonus for con­sumers, re­verse auc­tion sites are adding to the level of com­pe­ti­tion. Wat­son notes that since Jan­uary this year Canstar has ob­served over 50 len­ders change their in­ter­est rates. “When con­sumers are in pur­chase mode it is im­por­tant that they are check­ing what the best in­ter­est rates are,” says Wat­son.

This can make home loan auc­tion sites worth a look, par­tic­u­larly if your cir­cum­stances are straight­for­ward. Just don’t as­sume you’re get­ting the low­est pos­si­ble rate across the en­tire mar­ket or that the loan and its struc­ture truly match your needs.

“The cheap­est loan may not come with the flex­i­bil­ity you need”

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.