What is a digital home loan?

Q: Who offers digital home loans?

Among the key lenders in this space are Nano and Tic:Toc Home Loans (funded by Bendigo and Adelaide Bank). Until recently, 86 400 was part of this line-up, however NAB purchased the lender in 2021, and merged 86 400 with its online brand UBank to form ubank. The Commonwealth Bank is jockeying for a slice of the digital home loan market with the launch of its digital brand Unloan.

Digital home loans in Australia are becoming increasingly common, and gone are the days when you would need to visit a bricks and mortar branch to take out a mortgage. Could this type of loan be suitable for you?

Source: Ground Picture/Shutterstock.com.

Key points:

Digital home loans have an online-only application process, often involving the use of an app.
Some home loan lenders in Australia are digital only, with no physical branches.
With no physical presence to maintain, digital lenders can theoretically offer low rates to customers.

There was a time when applying for a home loan meant filling out a lengthy loan application and heading into your local bank branch to sit down with a manager and talk through your finances. Typically, this would be followed by a tense wait to find out if you’d been approved.

While face-to-face interaction is still very much a mainstay in the home loan market in Australia, digital home loans have become more prevalent, made the process more streamlined for some borrowers without a physical presence. So what are they all about?

What is a digital home loan?

Digital home loans refer to mortgages available through fintech lenders, also known as digital banks or neobanks. All modern-day lenders use digital technology to varying degrees in the home loan application process, but what sets digital lenders apart is that their loans have an online-only application process often involving the use of an app. Digital home loan technology is also distinct in that it allows some lenders to cut loan approval time down to a matter of minutes.

Who offers digital home loans?

The following is a selection of home loan providers on Canstar’s database provide a digital home loan service to borrowers:

AMP Bank
Athena
Australian Unity
Easy Street
Freedom Lend
Homestar Finance
ING
loans.com.au
Macquarie Bank
ME Bank
Pacific Mortgage Group
Reduce Home Loans
Tiimely Home (formerly Tic:Toc)
ubank
Unloan
Up
WLTH

How do digital home loans work?

Once you have been approved for your home loan purchased a property and begun paying off your mortgage, digital home loans work in much the same way as a traditional home loan. It is the application and loan assessment process that typically sets digital home loans apart.

Each digital lender has its own systems and processes. but speed is often a factor that sets them apart. For example, digital lender Unloan claims it can take just 10 minutes for borrowers to make a loan application.

The common thread that accelerates the loan assessment process for digital home loan lenders is that much of the behind-the-scenes processing is conducted using sophisticated technology.

To begin with, instead of handing over print-outs of your past bank statements, digital lenders usually rely on open banking. This gives the lender (with your permission) read-only access to your everyday account to review past transactions.

Using algorithms to analyse your finances, the digital lender analyses your account entries to determine your income and spending patterns, and get a feel for how much you can afford to borrow on your salary.

At the same time, lenders will consult the database of various property companies to value the home you plan to buy, while also checking your credit score to evaluate how well you’ve managed credit and debt in the past.

Superficially, this is much the same process that every lender follows. The difference with digital home loans is that each of these steps can be completed at the same time, and at high speed. Nano for example, claims you can potentially have the green light for your loan in a matter of minutes rather than days or weeks.

Digital home loans vs big banks: who offers lower rates?

Digital banks have no branch network to maintain, and no massive teams of credit analysts to review loan applications. So in theory, they should be able to offer cheaper home loan interest rates than the big banks. Indeed, a quick check of Canstar’s home loan database shows digital home loans can offer competitive rates.

That said, a digital mortgage won’t always be cheaper than a traditional one. For example, digital home loan providers may prioritise speed, convenience and a slick customer experience when designing marketing their products, without necessarily looking to compete with other lenders on price.

Canstar keeps track of the average home loan interest rates in Australia if you want to see how your current lender measures up.

Are digital home loans safe?

The trifecta of a potentially low rate, an easy online application process, and a rapid loan approval time can make digital home loans sound like everyone’s ideal mortgage. However, digitising the home loan process can be complex, and for the time being at least, digital home loans tend to be best suited to borrowers with straightforward circumstances that fit each lender’s criteria.

Digital lenders are bound by the same responsible lending criteria as other lenders in Australia. In practical terms, this means that while digital home loans are as safe as any other traditional home loan, they may not be suitable for all borrowers, due to the potentially high hurdles of obtaining one.

A digital home loan can come with a swift application process, a rapid approval time, and a low rate. But you need to be confident that you meet the lender’s criteria. If you don’t quite fit the bill, it’s good to know that in today’s competitive mortgage market there are plenty of low rate lenders vying for your business. It just may take a little longer to have your loan approved.

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