A new breed of home loan lenders are offering online approval in a matter of minutes, but there can be strings attached.
Online home loan applications are nothing new.
But until now, completing what appeared to be an application on a lender’s website was in many cases more of a fact-finding mission, allowing the bank to contact would-be borrowers and funnel them through the standard application process.
This is changing as a new breed of fintech lenders offer the real deal – online applications that can provide the green light for a mortgage in a matter of minutes.
The key to these turbocharged online approvals is the arrival of Open Banking, coupled with advances in technology and data collection.
Open Banking kicked off in Australia in mid-2020, allowing accredited third parties, such as lenders, to access a borrower’s savings and credit card data in a machine-readable way.
In simple terms, the lender’s computer scrolls through your transaction account entries, and in the case of lender Nano, applies sophisticated algorithms to sort the account activity into income, regular household expenses and any payments going towards other debts.
Fintechs back this up with a check of your credit score, and the final piece of the puzzle – valuing the home you want to buy – is completed in real time using property data maintained by the likes of CoreLogic.
Instead of a loan application chugging slowly through a bank’s credit assessment team, fintechs run these processes in parallel, allowing lending decisions to be made in less time than it takes to make a latte.
Leading the pack
It all sounds simple on paper, but digitising the home loan process is complex and 10-minute loan approvals demand advanced technology to drive high speeds.
This explains why at present, only a small number of fintechs such as Nano and Tic:Toc offer super-fast online approvals.
However, the big banks are not far behind.
NAB has rolled out its Simple Home Loans (SHL) application platform, claiming that about 90 per cent of retail applications are now eligible for this and that one in three of these are approved in less than one hour.
In May, the Commonwealth Bank launched digital home loan brand Unloan, which CommBank claims allows applications to be completed online in as little as 10 minutes.
The downside of machine-driven loan approvals is that they are not for everyone.
Target audience
Nano requires minimum household income of $100,000 and a 20 per cent deposit for buyers, or 20 per cent home equity for refinancers, and it does not offer loans for vacant land.
Unloan, meanwhile, is only available for refinancers at present.
And Tic:Toc does not offer construction loans or split loans (divided between fixed and variable rates), and does not accept guarantors, which likely knocks out of contention some first-home buyers.
The upshot is that algorithms, automated platforms and artificial intelligence have plenty of potential to shake up the mortgage market.
Right now though, if your situation is slightly out of the ordinary, it can make sense to speak to a mortgage broker for an idea of which lender is likely to give you the thumbs up.
Even if you tick all the boxes for online approval, taking out a mortgage for several hundred thousand dollars can call for a bit of hand holding.
For some borrowers, the reassurance of having a human connection to their loan application will compensate for a longer wait.
