Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
I had the chance to discuss the current state of the mortgage industry with Founder and CEO of Hashching Mandeep Sodhi.
Our conversation covered the recent underwriting tightening, mortgage prisoners, how brokers are helping borrowers navigate the new rules, and the rise of digital channels.
Australian mortgage marketplace HashChing is launching its own branded home loans for the first time, claiming to offer some of the lowest rates in Australia, and one of the fastest approval times on the market available through the mortgage brokers.
They say this is an opportunity for Australians to access highly competitive deals that are independent of the big four and large financial institutions, whose shady lending practices have been recently exposed by the Royal Commission.
Mandeep Sodhi, CEO of HashChing, said that securing a competitive rate with the banks is a stressful experience for most Australian borrowers.
“Even a slight difference in an interest rate can cost the average homeowner thousands of dollars each year,” said Mr Sodhi.
“That’s why so many Australians access the market through a mortgage broker, but finding a broker that aligns with their interests can also be challenging. This is what motivated us to launch HashChing and what has motivated us to offer competitive home loans through our platform.”
The new home loan product, which can only be accessed by HashChing mortgage brokers, gives borrowers access to approval within an impressive 24 hours, one of the fastest approval times available to Australians through the mortgage brokers.
“Timing can be the difference between owning your own dream home or missing out on the opportunity of a lifetime. The big banks typically take 4 to 5 days to complete an approval process, so we’re confident we can offer a service in this area that they cannot compete with.
“On top of that, our core business is offering instant access to the top rated mortgage brokers in any area who do all the legwork at no cost to borrowers, meaning we now offer a front to back mortgage service with some of the most competitive deals on market.”
HashChing started to initially solve the pain point of finding a community rated local broker in the area. The move to offer home loans through the platform is part of the greater expansion plans for HashChing, which is currently raising $5 million through crowdfunding platform Equitise.
HashChing is independent of the big banks and has chosen to undertake crowdfunding as a means to raise money while staying independent of any ownership by the banks. The funds will help to improve and expand the company’s current business activities and enable it to continue looking for ways to improve on the home loan process and offer better rates to borrowers.
Mr Sodhi said: “One of the main reasons we chose equity crowdfunding was because we wanted to stay independent. Unlike many other online mortgage platforms who are backed by a lender, we are and will continue to stand separate from the banks. We want our customers to become shareholders in HashChing and help us deliver the simple and effective end-to-end home loan journey that Australia is currently lacking.
“We look for ‘win-win’ opportunities, whereby if our customers do well, we do too – and vice versa. One such opportunity is allowing customers to own a piece of HashChing and benefit from any success we have. We’ve built this business on the ability to put more money back into the pockets of homeowners and not the banks, and this crowdfunding opportunity extends that vision to give our loyal customers and everyday Australians an opportunity to invest in a fast-growing disruptive start-up that they believe in.”
HashChing is Australia’s first online marketplace allowing consumers to access great home loan deals without having to shop around. Completely free to consumers, HashChing connects customers directly with verified mortgage brokers who further negotiate better rates from lenders, saving valuable time and money.
Equitise is an online equity crowdfunding platform connecting start-ups and high growth businesses, with a broad range of investors. We help businesses grow and thrive in a simple, intuitive and social way by disrupting the investment marketplace and removing the traditional funding barriers and costs.
Online mortgage marketplace HashChing has collaborated with research firm Digital Finance Analytics to produce the top eight mortgage predictions for 2018.
1. Mortgage interest rates are expected to continue rising. The consensus among HashChing brokers is that major banks will continue to nudge interest rates higher. HashChing broker George Kozah said the average home loan standard variable interest rate of 5.08 per cent (according to Finder.com.au) could rise approximately 75 basis points to 5.83 per cent by the end of the year.
2. Fixed rate deals to be a focus for many lenders. In 2018, there will be a greater mix of very low “special” rates to try and attract first time buyers and owner-occupied refinanced business. Many lenders will focus on fixed rate deals, taking account of lower funding rates. This may change later in the year in line with a strong likelihood that the RBA will lift the official cash rate.
3. Mortgage lending standards will continue to be tightened. This includes lower income multiples, less generous analysis of household expenses, and more conservative assessment of allowable incomes. In addition, the loan to value hurdles will be lower for many borrowers. This means that households who want to enter the market will need to be able to present with a larger deposit. “As a result, I expect more first time buyers will get help from the “Bank of Mum and Dad”, which can be worth as much as $88,000,” said Martin North, principal of Digital Finance Analytics.
4. Mortgage stress will affect more households. Last month, Digital Finance Analytics reported that mortgage stress – which is generally when a household spends more than 30 percent of its pre-tax income on home loan repayments – affected more than 921,000 households in Australia. This could climb to more than a million by the end of 2018, and Digital Finance Analytics attributes the problem to a range of issues, including rising living costs, slow wage growth, and larger mortgages (due to rising home prices).
5. More borrowers likely to refinance home loans away from the big four banks. This trend was demonstrated last year using data from HashChing which showed the greatest exodus (37 percent of national borrowers with the big four banks) from Commonwealth Bank. Smaller lenders are offering variable rate home loans as low as 3.56 per cent, and the clear savings compared to the major banks is prompting an increasing number of borrowers to jump ship.
6. Cooling property prices to continue into 2018. Tougher lending restrictions on investors and interest-only loans has increased the housing supply, leading to property prices in major cities such as Sydney and Melbourne to decline last year. The national median house price index fell to 0.3 per cent in December (according to CoreLogic data), and this trend is expected to continue in 2018. Overall, new residential construction will stay strong, as recent building approvals flow through, but there will be a fall in the number of high-rise units release to the market – especially in Melbourne and Brisbane.
7. First home buyers will make up a greater percentage of borrowers. Softening property prices, greater housing supply and government grants/stamp duty concessions (in states such as NSW, Victoria and Queensland) will see more first home buyers enter the market in 2018. In the first week of the year, HashChing has already seen a considerable uptick in web traffic, with a 12% increase in home loan enquiries from first home buyers compared to this time last year.
8. Mortgage brokers will continue to settle most residential mortgages. The latest industry data shows Australian mortgage brokers settled 55.7 percent of all residential mortgages during the September 2017 quarter, which is up from 53.6 percent in the same quarter last year. While the upcoming changes to mortgage broker commission structures (namely, the elimination of volume incentives) will result in lower lending volumes, brokers will still maintain significant share, and their overall footprint will likely continue to increase.
New research from HashChing and Digital Finance Analytics shows a
massive discrepancy in home loan interest rates across NSW, with vast differences in rates even within the same suburbs.
Data shows that in some cases, neighbours are paying up to $87,027 more for new owner occupied loans (105 basis point disparity), and $201,704 more for refinanced owner occupied loans (235 basis point disparity). The calculation is based on an average home loan of $500,000 over 25 years.
Those borrowers paying higher rates are essentially adding an extra three years of mortgage repayments (34 months) compared to those on a lower rate.
According to Mandeep Sodhi, CEO of online mortgage marketplace HashChing, borrowers are more empowered to take control of their finances than ever, but need to be more proactive when it comes to their home loan.
“The data shows that the highest and lowest rates are not confined to single suburbs, suggesting location is not the be all and end all when it comes to interest rates. In fact, at the time that the data was recorded, the lowest rate, 3.49 per cent, was available all over Sydney, including the Eastern Suburbs, Sydney CBD, North Shore, Inner-West, Northern
Beaches and South Sydney.
Multiple suburbs were also found to have both the lowest and highest interest rates on the same type of loans for their region. For example, homeowners in Artarmon had the lowest and the highest rates on the North Shore for refinanced investment loans, and new owner occupied
loans.
The lowest new owner-occupied rate in Artarmon was 3.94 per cent, on a loan amount of $950,000. While the highest was a rate of 4.45 per cent, for a lower loan amount of $600,000. And, although the loan size for both the highest and lowest rates for refinanced investment loans was the same ($420,000), the lowest rate was 3.85 per cent and the highest was 5.79 per cent, that is a leap of 1.94 per cent.
According to Martin North, Principal of Digital Finance Analytics, the amount that households pay is determined by a range of factors: whether it is a new loan or a refinanced loan, where the property is located, the type of loan, the loan to value ratio, and how the loan is negotiated.
“Borrowers shouldn’t necessarily take the first rate they are offered. It is not in a lender’s interest to automatically offer the golden egg. Rather, a negotiation has to take place, and borrowers have to have an appetite for it.
“The lender is providing a service for you, so be prepared to negotiate, or use a broker to help get the best deal,” said Mr North.
Those who have already settled on a home loan were also called to be more proactive in reviewing their rate and situation frequently.
“Too often borrowers have a ‘set and forget’ mentality when it comes to their mortgage. What they don’t realise is you can actually renegotiate a better rate with your current lender, or switch providers entirely which can save thousands, often completely outweighing any switching costs that may be involved,” said Mr North.
The data indicated that new owner-occupied loans across Sydney CBD, Northern Beaches and Western Suburbs all had average interest rates above 4 per cent, while South Sydney (3.95), Eastern Suburbs (3.94), Inner West (3.89) and North Shore (3.86) sat just below.
The average refinanced owner-occupied rate in the Inner West was a high 4.12 per cent, followed by the Eastern Suburbs (3.99) and North Shore (3.95).
The average loan size for those refinancing was $341,603 and the average loan size for a new home was $958,222 – with Northern Beaches and Western Suburbs residents borrowing the most.
* Note, high rates due to poor credit history or unique circumstances were removed from the data before analysis.