2017 saw the formation of several new partnerships that married real estate listing sites with lenders/mortgage providers. Annie Kane looks at why there is a growing momentum to consolidate the home buying process.
The relationship between real estate groups and mortgage providers/brokers is well established. Since the start of the broking industry in this country, the two sectors have formed ties: Oxygen Home Loans and Loan Market were both founded by real estate groups; and LJ Hooker, Elders, Century21 and Raine & Horne have all offered mortgages for some time.
Traditionally, the way that borrowers accessed mortgages through real estate agents is either by referrals from an agent or an in-house broker. But the internet has changed the way we consume financial products, with ease of access, autonomy (to a point) and flexibility becoming increasingly important to borrowers. And this expectation of accessibility and efficiency has subsequently spread to real estate and mortgages.
In 2017, we saw the birth of “the world’s first instant home loans” as Bendigo and Adelaide Bank–backed Tic:Toc launched, touting the arrival of the 22-minute home loan. Time, the platform stated, was of the essence when it came to accessing finance for mortgages.
“The new competitive battleground in mortgages is speed, and that is best delivered through an end-to-end digital fulfillment process like ours,” Tic:Toc founder and chief executive Anthony Baum told The Adviser.
“I don’t just mean time to decision. Convenience is also an important factor. What we know about consumers is that a growing segment are happy to self-service and are getting more used to self-serving through fulfilling other requirements digitally in terms of purchasing products and services.
“At the end of the day, the feedback we are getting is that it is really easy, customers don’t feel pressured and they don’t feel sold.”
The best of both worlds
It seems that the need for speed was catching. Last year, we also saw two real estate listing sites announce partnerships with broker groups: REA Group acquired an 80 per cent stake in mortgage broking group Smartline, while the Fairfax-owned property classified group Domain launched its new Loan Finder, in partnership with mortgage platform Lendi.
The thought behind these partnerships was that borrowers looking to buy a property on these listing sites could then access the finance for the purchase easily by being put in contact with a broker (or doing it online themselves). Domain and REA Group’s listing platform — realestate.com.au — became one of the first end-to-end property search and finance platforms in Australia, enabling home buyers to move forward with their property dream by giving them conditional approval to put in a bid.
REA Group even went one step further, entering into a strategic partnership with NAB to launch its own white label product — realestate.com.au Home Loans — supported by the brokers working under the NAB-owned Choice brand. In fact, since its launch in October 2017, the Choice Home Loans brand has switched to realestate.com.au Home Loans, with around two-thirds of Choice brokers taking up the new name (with the remainder becoming independently branded).
Speaking of the offering after its launch, Stephen Moore, CEO of Choice, told The Adviser: “Consistent with the vision of combining digital and face-to-face, we’re not just espousing a theory — we’re living and breathing it in practice. Hence the decision to partner with REA to create a new broker business: realestate.com.au Home Loans. [This] is the marriage between digital and high-quality face-to-face advice on the broker side.”
According to Mr Moore, the decision to partner with REA was a deliberate one, meant to leverage its “very strong brand resonance in the broader marketplace” and its ability to “provide real opportunity for significant volume and quality of new client opportunities.”
He continued: “Most importantly though, it’s [about] starting a relationship with the client as they’re interacting to buy a house, as opposed to buying a home loan, and that is fundamentally different. So, we think it’s a really exciting future.”
Some are less convinced that borrowers will want to get their finance from a real estate listing site. Vince Turner, the founder and CEO of online brokerage uno, told The Adviser last year that breaking into a new industry (i.e. mortgages) is not only challenging from a cultural perspective but also from a customer buy-in perspective.
Explaining, Mr Turner said: “You could argue that it’s pretty hard to get out of bed in the morning and be a media company [publishing company Fairfax owns Domain] and a financial services company. It’s very different culturally and it [needs] a very different set of skills, so I think that will be part of the challenge. These things are not natural to them.”
The uno founder said that his company had partnered with several different companies, but that the thinking was that these partnerships would only be around 10 per cent or 20 per cent of its business.
He added that a large part of the difficulty would be getting customer buy-in, as users of realestate.com.au and Domain are not primarily visiting the sites for a mortgage but for a property or rental listing.
“It’s difficult to get a consumer to get onboard with something that is not what they went to the site for. For example, they are using the sites for real estate, not a mortgage, so it’s challenging to get them onboard with this new side,” Mr Turner said.
“We know it’s challenging because we have been working real estate sites and we operate with other sites that want to bundle mortgages into their consumer experience... [if ] the customer didn’t go there for a mortgage, trying to intercept them and say, ‘Look at this mortgage over here’, it’s difficult.”
Another obstacle that these sites could face is the customer service side of handling a mortgage, Mr Turner noted.
“Consumers who are going to these sites are operating digitally, so convincing them to go through the mortgage process, which needs ‘advice’, is challenging,” the uno founder said.
Mr Turner revealed that delivering that support and advice had been a challenge for uno. He explained that, although he believes the online brokerage is “leading this space in delivering an advice experience and the support experience digitally”, it had spent the last year trying to solve this conundrum and “still has a long way to go”.
“I think it’s going to be a long road for Domain and REA in getting this to work for them,” the CEO added.
“I think they have the pockets to push it and they have made it a strategic priority (and maybe they will get there in the end), but it’s not as simple as just bolting on a mortgage broking business. It’s a lot more complicated than that.”
Choice’s Mr Moore said that while customers interact digitally on the platform, it is “more common than not” that they will then choose to want to speak to someone about the finance side of things.
He concluded: “There are two ways to look at digital. One is digital as an enabler of business to run it more efficiently; the second is from a consumer perspective (and it’s a noisy space in the broader fintech category) and our view is strong on this: We see the use of digital channels as [a] supplement [that] [w]on’t replace high-quality, face-to-face advice.
“That certainly has been our vision when it comes to digital for some time now, and it still holds true today. It’s a combination of digital and face-to-face — that marriage — that we think is a real core part of the future. For brokers, the world is changing rapidly and [there is] no better example than in digital.”
The trillion-dollar question
Speaking to The Adviser about the REA-NAB partnership, Bill Armour, NAB’s general manager of strategic growth – consumer lending, said that the new partnership aims to achieve three things: provide confidence to consumers about the ability to access funding and advice on the appropriate funding; an easy application service (so that there is little rework on their part in regards to form filling); and choice of channel (whether that be online and direct, or face-to-face or over the phone via a broker).
Mr Armour explained: “Customers are using brokers across Australia and our view with the partnership is that we do need to have a strong broking proposition to support customer choice and options to draw on lending. So, what we have is a digital component so you can apply online and get an instant online decision; we have support through a contact centre who you can talk to, SMS with, or use live chat, email, etc.; and then we have the face-to-face broking proposition as well. In terms of what our consumers are doing today, we think it is important [to give] them access to each of those different options depending on where their preference is.”
For example, a borrower can use the platform’s calculator to understand how much finance they can borrow for a particular property by filling in the purchase price, the savings and the type of loan they want. This data is then captured and sent to the broker when the time comes for the loan to be finalised, removing the need for the consumer to go over the same things again, and giving the broker a more informed starting point (and therefore a higher-quality lead).
Mr Armour said: “The trillion-dollar question is whether consumers will increasingly want to access their finance through portals like this. But there are two data points that we have found in the first couple of months of the partnership: We have had over 100,000 unique customers use our calculator so far.
“Plus, it is important that it is quite a different part of the process to when we would normally engage with those customers from a banking perspective. We are now engaging with them much earlier in the process than what we would traditionally have done. Because, while they are looking for houses, it might be six, 12 months before they want the finance. So, we are playing in quite different spaces and getting a really broad reach.
“The second thing that is interesting and one of the values of doing this in a digital context is that we are effectively 24/7. And we found a really interesting stat recently that we have received more approvals between 9 and 10pm than we do between 9 and 10am. It’s referred to as the ‘kids are in bed’ hour. When we asked customers in the research stage when they would use this process, they described it as being convenient when the kids are in bed; they have had dinner; they can use the computer/laptop/iPad, etc.; and have time and space to do this. So, we found that really interesting. If you think that the traditional branch is 9am to 4/5pm, it’s important that we can service the needs of these customers even when our branches are closed.”
Give and take
These sorts of partnerships make sense in our fast-paced, increasingly digitised world. Making it easy for customers to have their finance sorted at a time most convenient for them is logical from both a customer satisfaction and business perspective. But is there another motive at play here?
With the Australian housing market showing signs of cooling (CoreLogic data showed that national dwelling values fell by 0.3 per cent in December — the first negative quarterly growth for more than a year) and property prices falling (Sydney and Melbourne prices have been tipped to drop by up to 10 per cent this year), are partnerships such as these a means of safeguarding incomes?
For example, if the property market cools and appetite drops, fewer houses would be sold, which would impact both the real estate and broking sectors. But with these new property search and finance platforms, making it easier to access housing finance could help ensure that properties tick over and that houses get sold, safeguarding both real estate and broker incomes. If the property “bubble” bursts, real estate agents will need more referrals from brokers to make the same amount of money, and brokers will need more referrals from real estate agents, especially if the housing market cools and there is less mortgage demand out there.
According to David Burfoot, senior consultant at The Ethics Centre, symbiotic partnerships such as these require stringent consideration for conflicts of interest, whether actual or perceived.
He elaborated: “If you have both mortgages and houses being advertised in the same place, what are the risks? Could someone think that they have to get a loan from bank X in order to purchase a particular property? That is a risk.
“So, when you are looking at risk, there are three different kinds of risks and conflicts of interest that we need to be considering: actual risk (is it really true that someone is going to be offered a mortgage or begin a mortgage that is not going to be in their interest in order for them to be able to purchase a particular house? If that happens, that is an actual conflict); the perceived conflict (if there is no real conflict but to the outside person, there’s a lack of integrity in the process, or it doesn’t look that those processes are fair or the advertising is fair); and, of course, there is the potential that something could happen in the future.”
However, Mr Burfoot suggested that these search function/ finance platforms are actually less conflicted than the more traditional method of accessing housing finance from real estate agents: by referral.
“When you look at this particular situation, it represents itself as an advertising opportunity. You are catching the people who are coming to look for houses and catching them at the place they are coming to look with an advertisement about arranging funds.
“But if you have real estate agents or people who are engaging on behalf of the client who are also advertising particular organisations to provide finance for the purchase of the house, you can see all sorts of risks there.”
He explained: “[With] a real estate agent sending a consumer to a particular bank for a loan, there are risks. If you have someone who is representing a client and they are in the position to influence who gets that particular house, then the risk there is at least the perception (whether it is actual or not) that the real estate agent could encourage the ones who go to a particular lender because it might be in their interest, rather than in the client’s interest, or even in the person who is purchasing the house’s interest. So, you have that question to their impartiality.”
But where do we draw the line? Should access to housing finance — which can be millions of dollars — be this easy and convenient? Buying a house is one of the biggest and, for many, the most expensive decision we ever make. For a country with such high household debt levels (RBA analysis of the latest national accounts indicated that debt is 99.7 per cent greater than the total earnings of all households), is there such a thing as making housing finance too easy to access?
Only time will tell.
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