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Cashback offers driving new consumer behaviour

by Annie Kane7 minute read

More borrowers are looking at refinancing to take advantage of short-term gains such as immediate cash flow rather than their long-term financial goals, a banking executive has warned.

Amid a low interest rate environment and an increasing number of cashback offers from lenders, the number of refinances has been on the rise in recent months.

However, with COVID-19 placing pressure on consumer cash flow, there has been a change in borrower behaviours when it comes to mortgages, according to ING’s head of third party distribution and direct mortgages, Glenn Gibson.

Speaking to The Adviser, Mr Gibson outlined that there has “certainly been a shift to more refinances” in recent months as fewer properties have gone to market and more borrowers look to refinancing as a means of freeing up cash.

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“Refinancing is sometimes done as a way for customers to get a better rate, but we’re also seeing customers refinance because they want to do something else… People will invariably refinance when they need to do an event that they need to borrow for – say, a renovation,” Mr Gibson said. 

“At that point, they will look at their entire lending requirement and that’s probably driving a bit of refinance action at the moment.”

However, he explained that a new refinancing driver was emerging as a result of borrowers looking to take advantage of cashback offers being offered by some lenders, at a time when cash flow may be hard hit due to the economic crisis triggered by the coronavirus (COVID-19).

He explained: “While there is still plenty of purchase action happening, as you can appreciate there are people whose personal circumstances might have been impacted by COVID-19. For example, by certain industries closing down. 

“I know that there are a number of customers out there that are actually thinking that this is an opportunity to get cash [from cashback offers], and then looking at refinancing again. So, this is a risk from an industry perspective, especially from a broker’s perspective, that a customer may take out a loan with a lender in order to get that cashback now, but then as soon as they get it, they then refinance with another lender for a cheaper rate.

That’s a trend that we’re certainly keeping our eye on to see what’s happening in that space,” the head of third party distribution and direct mortgages told The Adviser.

Mr Gibson added that this pattern was resulting in a “distinct changing client behaviour”, with more borrowers asking their broker to help them take advantage of cashback offers now but then change them into a cheaper loan later down the line.

“My daughter is a broker and she was recently asked by a client whether they could be placed with a lender that has a cashback offer and then as soon as they’ve got the cash back, refinance to another lender,” Mr Gibson revealed.

“The clients are just looking at the cash in hand now. It’s a struggle for brokers because they know they’re going to get 100 per cent clawback and do all this work for nothing, but they need to have the best interests of the customer at heart and show them that there’s a lot of paperwork involved and will take time and all the rest of it that the customer has to go through. 

“[Consumers] need to understand what the long-term objective is, not simply what’s their next three-month objective,” Mr Gibson said.

While several lenders have experienced blow-outs in their turnaround times in recent weeks as borrowers look to take advantage of cashback offers, the ING head of third party distribution and direct mortgages revealed that brokers were increasingly turning to ING for refinances due to the consistency and rapidity of its turnaround times. 

We’re seeing a lot more activity in the refinance space and it really comes down to the broker being confident that they can deliver a good service and be confident of what the borrower is going to get by sending them to us,” Mr Gibson said.

“My observation of the industry at the moment is that rate is not the primary driver of the conversation, especially through brokers… the consideration for brokers comes down to where they can place the loan and get it set. Right now, speed is one of the most important factors to a customer.”

According to Mr Gibson, the bank has had an average turnaround time of two days since August 2019 and has been committed to answering broker calls within 30 seconds.

“We put a structure in place, with our broker support team, to have a separate broker contact centre dedicated [just for the channel] and staffed it up to be well overstaffed. We know that when brokers want an answer, they need an answer quickly, so being able to give that kind of service to brokers has been fantastic.”

He concluded: “We’ve always said that we’re here for brokers. We’ve been around for around 20 years and working with the broker channel. We’ve always been supportive, but I think the last 12 months in particular, we’ve put our money where our mouth is and whether it be BDM support, processing or rates. I’m really proud of the team and that we’re absolutely delivering on our promise.”

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Annie Kane

Annie Kane

AUTHOR

Annie Kane is the editor of The Adviser and Mortgage Business.

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