CBA’s Unloan Will Help It Defend Its Home Loans Against Fintechs

Commonwealth Bank’s new 10-Minute Mortgages are another step in the digitalization of home lending, increasing pressure on the mortgage broker’s $4.1 billion annual fee pool as the bank attempts to regain control of its activities.

Mortgage brokers are mostly one- or two-person businesses that now control 67% of all home loans, up from 47.3% in 2013.

This increase showed that the big banks have lost control of their most valuable product, as customers choose home loans based on price.

Commonwealth Bank’s (CBA) decision this week differentiates the bank in an increasingly commoditized market.

The CBA is the only one of the Big Four to originate more than 50% of its home loans, with its share totaling 54% at last count.

The new ‘Unloan’ product, unveiled by Chief Matt Comyn this week and hosted by a wholly-owned subsidiary of the ABC, is part of the ABC’s defense of its $450 billion loan portfolio against fintechs. , and in the process gives the bank more control over its business.

Mortgage and Finance Association boss Mike Felton acknowledges the competitive impact, but says “we see digital more as an opportunity than a threat.”

Major aggregators like REA’s Mortgage Choice and AFG have already gone digital and, as Felton notes, “Mortgages are the most important financial decisions many people make and they want someone to talk to and help them”.

The new Unloan product will start with loan refinancing but will expand to new loans, initially helping people with simple finances, such as payroll taxpayers and those with a history with the bank. to show their spending history.

Barrenjoey analyst John Mott welcomed the move, which will tend to keep more customers in the bank but, in doing so, reduce spreads on existing loans.

However, not all is up for CBA, which is earning an average of 40 basis points more on its so-called backlog, or existing loans, than new loans.

For example, as variable mortgage rates rise from approximately 2.3% to 4.3% over the next two years, new customers will benefit from a discount while old customers will be in greater demand.

Existing customers get better rates by threatening to leave unless their mortgage rate is reduced.

The CBA is trying to stop customers from swapping banks to seek better deals with a loyalty bonus of 0.01% per annum and the new digital process makes it easier to refinance a loan.

The new product is at this stage only intended for simpler loans, but over time it will be expanded, increasing pressure on rivals and aiming to regain control of its most valuable product.

But Felton points out: “The mortgage broker value proposition has always been based on experience, choice and convenience, but as of January 1, 2021, consumers also benefit from a higher interest obligation.

“It provided another compelling reason to use the services of a mortgage broker and one that led to an increase in consumer confidence.”

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