Is A Digital Home Loan the Best Choice For Me?

01st Dec, 2021 | Customer eNews

In this article:
Digital banks, or neobanks, once the new kids on the block, are now offering digital mortgages. Here's everything you need to know.

Digital banking is nothing new. Chances are you do most of your banking online these days. But a digital bank, or neobank, whose entire operations are online, is a little more recent.

Now neobanks are starting to move, rather successfully, into the home lending market, people are beginning to pay more attention.

Let’s take a look.

What’s a digital bank?

Also known as a challenger bank or neobank, a digital bank offers new and traditional banking products online only and usually through an app. Everything you would expect to find in an offline bank is now all done online. There are no physical branches.

You might be surprised to learn that digital banking goes all the way back to the ’60s when the first ATM machines and cards were introduced. However, it wasn’t until the ’90s and the widespread availability of the internet that digital banking came into its own.

Once smartphones made their way into the pockets of almost everyone, it was only a matter of time before digital banks started competing with traditional banking models.

Note: a bank offering online or digital services isn’t a fully digital bank

Are digital banks safe?

Absolutely. If digital banks take money from or lend to customers, they must abide by the rules, standards and obligations set out by regulatory bodies, including the Australian Prudential Regulation Authority (APRA) and Australian Securities and Investment Commission (ASIC).

Open banking and neobanks

Since November 1, 2020, Australian banking customers have been able to share all their financial information, including mortgage, personal loan and joint bank account data, with any accredited third parties they choose. This is the penultimate phase in Open Banking.

This has given neobanks an extra boost because now customers can share their financial details electronically.

We have you covered on all stages of your property journey

What’s a digital home loan?

A digital home loan is the same as any other home loan, except it’s offered by a digital bank. The same rules, regulations and responsible lending practices governing the more traditional lenders apply to home loans provided by digital banks.

Unsurprisingly, younger, first home buyers are leading the digital home loan trend, with digital lending made easier because it utilises the speed and sheer convenience of the internet. Not to mention a fast approval process, with home loan applications processed in hours and minutes rather than days or weeks.

Do all neobanks offer the same home loans?

No, they don’t. This is a major point of difference as more traditional lenders tend to offer the same or similar products. Some digital banks provide a range of home loans, while others only deal with specific customers (such as those refinancing). 

Pros and cons of digital home loans

As with any lender, do your research or chat with your broker so you get the best deal possible for your personal and financial situation.

Pros of a digital home loan:

  • No need to visit a bank
  • Do everything online at a time convenient for you
  • Lodge your home loan application and submit all the necessary paperwork digitally
  • Contact-free
  • Faster processing and approval times
  • Competitive interest rates and lower fees
  • User friendly, easily accessible apps and technology
  • Ongoing digital loan management (via the app)

Cons of a digital home loan:

  • Limited options and products (for the time being)
  • Digital lenders have a strict 80% LVR policy
  • Currently unavailable for the self-employed and borrowers with a bad credit history

Keen to know more about digital home loans? Our brokers are keen to chat with you about them.