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The mortgage market could soon welcome new lenders offering an alternative to the major banks by using credit scores to provide risk-based pricing on home loans.
At the launch of the fourth annual Veda Australian Credit Scorecard in Sydney yesterday, the conversation shifted from the value of credit reporting to how mortgages can be priced for risk based on the credit scores of borrowers.
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Izzy Silva, Veda’s general manager, consumer, said the company is seeing is “a whole spectrum of new entrants” coming into the country after noticing the trend in risk-based pricing that has occurred overseas.
“They have seen what has happened in the US and UK,” Mr Silva said. “They are coming here knowing that trend will follow. Yes, we are a little bit behind in terms of pricing for risk at the big four banks and the next level down, however this is a consumer-driven change.”
According to Mr Silva, Australia’s banks could be forced to change their mortgage pricing if customers begin questioning how their credit score impacts their home loan.
“If we, as a consumer, go to the lenders and say ‘we want to know where we stand’, that could be the start of the change,” he said. “The change will come. It’s a few years away. We are now seeing new entrants coming into the mortgage space who are saying ‘let’s capitalise on the fact that more and more Australians are understanding their credit score and let’s look at what we can provide them aside from what the big banks can.”
Veda’s general manager of consumer risk, Angus Luffman, added that the way a mortgage product is structured means that pricing for risk on the same product is actually more challenging.
“It’s more a case of different products will meet different purposes,” he said.
“So the new players that are coming in are using the credit score to see how they can path that consumer to the relevant product for the credit credentials that they have. That is how that will come about in mortgage markets.”
Brokers set to reap the benefits
Veda’s research of 1,000 consumers found that Australians are becoming increasingly aware of their credit score, with 23 per cent now accessing their file compared to 11 per cent in 2015.
Mortgage brokers are also checking the credit scores of their clients at record rates. In the past three years, the number of credit checks executed by brokers has increased by 72 per cent, according to Veda data.
Mr Luffman said more broker organisations were introducing credit checks as part of their compliance program, as well as streamlining their use of external data sources. This allows them to build a more complete picture of a consumer’s financial circumstance, assist in matching customers to best fit lenders and reduce application processing times.
“Mortgage brokers will be one of the first groups to benefit from the additional insights that Comprehensive Credit Reporting (CCR) data contributes to credit reports. These additional insights will not only help secure the appropriate deal but also ensure responsible lending obligations are met,” he said.
In March, Veda announced it had partnered with AFG, to make it easier for mortgage brokers to perform credit checks and better match potential borrowers with appropriate products via integration with AFG’s technology platform FLEX.
Veda has also integrated their credit reports into a number of loan management platforms including SymmetryCRM® and secured agreements with a range of aggregators focused on making it easy and cost effective for brokers to access credit reports.
“The combination of conversion rate benefits and better customer experience means there is no doubt that credit checking is best practice and will increasingly become the norm,” Mr Luffman said.
[Related: Lender voices concerns over 'dissapointing' CCR adoption]
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