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New and existing borrowers increasingly favour smaller lenders over the big four, new data from online brokerage Lendi has revealed.
The latest Lendi Home Loan Report for 2019, which reflects home owner data captured on the lendi.com.au platform from more than 4,350 settled owner-occupier, principal and interest (P&I) loans, showed that more Australian borrowers are favouring smaller non-major and non-bank lenders over the traditional big four banks.
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According to the report, the big four banks held 33 per cent of the market share for owner-occupier loan settlements through Lendi in January. However, this fell to a low of 16 per cent in August.
Across the whole year, 20 per cent of new and refinanced owner-occupier loans settled on the Lendi platform were with the big four, down from 30 per cent recorded in 2018.
Refinancers are leading the charge away from the major banks, with just 15 per cent of owner-occupiers refinancing with a major bank through Lendi in 2019, down from 26 per cent in 2018.
The report suggests that one reason borrowers have rejected the big four may be a reaction to rate changes.
Over the course of the year, the Reserve Bank of Australia cut the official cash rate by a total of 75 basis points (bps) throughout 2019.
According to Lendi data, the median interest rate charged by the big four dropped by 57 bps throughout 2019, whereas the median rate for non-majors dropped by 62 bps.
Over the year, the average difference between median rates offered by the big four banks and non-major was 14 bps; however, the gap grew to be as much as 22 bps for loans settled in June.
Between May and June, the big four banks’ median interest rate on settled loans fell by 3 bps, whereas the median interest rate charged by other lenders decreased by 12 bps.
Lendi co-founder and managing director David Hyman said the popularity of smaller and tech-based lenders continues to grow due to their competitive interest rates, as well as due to fallout of the royal commission, which “brought long-held royalties to the big four into question”.
He continued: “As the RBA started cutting the official cash rate and the big four came under fire for not passing on the full cuts, a wave of borrowers were already showing a preference for smaller lenders, and this has only strengthened as the year rolled on.
Looking forward, Mr Hyman said he expected the popularity of smaller and newer lenders to strengthen, particularly as the neobank category continues to “win over consumers who’ve had enough of the big institutions.”
He concluded: “With a changeable property market, a federal election, three rate cuts, changes to and ongoing review of regulation, 2019 may be one of the most eventful years we’ve seen in the home loan industry for some time.
“2020 will no doubt be another interesting year. Competition will intensify, particularly as more neobanks enter the market, but also because refinancing will become easier, with ASIC’s changes to responsible lending guidance and as open banking takes effect in the home loan market.
“As an industry, we have so much technology and data at our fingertips – there’s no excuse for not improving both the customer experience and outcome.”
The findings from the Lendi Home Loan Report echo those of the Australian Finance Group’s latest mortgage and competition index, which showed that investors and borrowers seeking interest-only repayment terms were flocking in droves to Australia’s non-major lenders.
In the three months to 30 September 2019, the share of investor lodgements to the big four banks slipped from 56.2 per cent to 50.2 per cent.
When compared with the same quarter in 2018, the major banks’ investor share is down from 57.1 per cent.
This coincided with a sharp drop in their share of interest-only lodgements, from 55.4 per cent in the three months to 30 June, to 47.8 per cent in the three months to 30 December.
[Related: Mortgage arrears fall, to remain low: S&P]
