Digital mortgages have cut-price rates, but they don’t suit everyone

All of Australia’s major banks are racing to offer digital mortgages: systems that allow banks to decide whether to lend hundreds of thousands of dollars, even millions, in as little as 10 minutes.

No one likes delays, sure. But when the cost of living is surging, a competitive interest rate is probably more important for many.

Digital home loans are often cheaper for banks to provide and sometimes the lenders promise to pass on these savings in the form of lower rates.Credit:Rhett Wyman

So, can these much-hyped products actually save customers money, as well as give the green light quickly? And are they likely to be useful for a large number of borrowers?

The big four banks (and several smaller lenders) have either launched or will soon offer some sort of digital mortgage process. Some of these systems can approve loans without human involvement, while others allow mortgage brokers or bankers to do their jobs faster, but the idea is broadly similar.

CBA recently said it had written $1.5 billion of loans through its digital loan unit Unloan, which it launched last year. Bendigo and Adelaide Bank also reported its digital lending unit BEN Express had grown to $100 million, up about 50 per cent in the latest half, and it had sold $38 million in home loans through its youth-focused app, called Up.

These numbers are not huge in the scheme of things – CBA’s $1.5 billion in digital mortgages is still a tiny share of the bank’s total $570 billion in mortgages. But rivals are also moving into digital loans.

Westpac launched its digital mortgage process for refinancers in late 2022, and ANZ Bank plans to launch its digital loan to the public later this year. National Australia Bank instead has a platform that it says allows its bankers to approve loans quickly, and about half of all its mortgage applicants get an answer in 24 hours. Smaller non-bank lenders such as Athena Home Loans are also targeting the market.

Often, digital loans are cheaper for banks to provide, and sometimes the lenders promise to pass on these savings in the form of lower rates.

So, are they living up to the hype?

When judged by interest rate alone, some digital mortgages are certainly cheap. CBA’s Unloan owner-occupier rate – only available for refinancers – is at the sharp end of the market at 4.74 per cent (after a 0.3 percentage point increase in February). The BEN Express rate of 4.72 per cent is also competitive, though it has not yet responded to the February rate rise.

Both rates are below the rates of more than 5 per cent charged by the big four’s flagship brands, according to RateCity data. CBA also says its Unloan product has only passed on 2.6 percentage points of the 3 percentage points in official rate rises to borrowers since it was launched in May last year.

However, these sorts of products won’t suit everyone. Some cut-price loans don’t include an offset account, for one.

RateCity’s Sally Tindall says digital loans are generally for full-time employees who are living in their properties and looking to do a simple refinance, typically for lending up to a maximum loan-to-value ratio of 80 per cent.

“Once the borrower’s application gets more tricky, such as if they are self-employed, or have less equity, or applying for their first loan, a human element is often required to step in and complete the process,” she says.

Even so, these products will inevitably be able to deal with a wider range of customers over time.

While they’re serving a small minority today, eventually digital mortgages have the potential to disrupt a highly lucrative market, as has already occurred in areas such as foreign exchange and credit cards.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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