Home loans: Is 2021 the year of the online lender?

Quick facts from our research:

• Aussies are looking for better home loan deals, with 62% of borrowers considering online lenders rather than the big banks.

• On average, borrowers could save $4,024 a year by switching from the big four banks to an online lender.

• Not knowing enough about online lenders, wanting face-to-face discussions and remaining loyal are the main reasons borrowers gave for staying put.

• 35% also trust their mortgage broker to recommend the cheapest rates, despite many online lenders removing brokers from the equation.

Comparing costs: Big banks vs online lenders

The big question is do online lenders stack up?

While big banks still make up the lion's share of mortgages, a growing number of Australians are seeking cheaper home loan rates elsewhere, with online lenders snapping up savvy borrowers looking to save.

In fact, in a recent survey of 1,226 Australians conducted by Mozo, almost two-thirds (62%) said they would consider an online lender instead of a big bank.

Among those surveyed, 55% said cheaper rates were the most appealing factor, followed by lower fees (54%), easy applications (32%), and faster approval times (29%).

Considering different lenders makes sense. While the average variable rate among lenders we track currently sits at 3.28% p.a. (and 3.57% p.a. among the big four banks), Mozo analysis found that borrowers stood to access rates up to 129 basis points lower if they shopped around.

At the time of writing, the most competitive variable rate in our database is 1.99% p.a. (1.99% p.a. comparison rate*), offered by 2021 Mozo Experts Choice Award winner Reduce Home Loans.

If the average big four bank customer paying off a $400,000 loan were to switch to this rate, they could potentially save $4,024 a year in repayments.

“With thousands of dollars to be shaved off your mortgage each year, it's hard to see why borrowers wouldn’t bank a better rate through an online lender,” says Mozo spokesperson Tom Godfrey.

Mortgage mire: What’s holding borrowers back?

Despite the low rates available elsewhere, many borrowers stick with their bank out of loyalty, a preference for face-to-face service, and a lack of information about alternatives.

Almost a quarter of borrowers surveyed by Mozo (23%) also said they would choose a bank over an online lender if their mortgage broker advised them to.

Of course, different borrowers have different priorities when picking out a loan, and price will often be weighed against other factors like features and convenience. But the influence of brokers can’t be underestimated. 

Among those surveyed who used a mortgage broker, 31% said it saves them the hassle of searching for competitive rates, while 28% said it takes the stress out of completing the application process.

Make sure to do your research

While mortgage brokers may be the first port of call for many Australians looking to purchase property, home loan customers who rely exclusively on them could be missing out on much cheaper deals.

Over a third of respondents (35%) said one of the main reasons they used a mortgage broker was to access the lowest interest rates. 

But some of the most attractive variable rates come from online lenders that refrain from using brokerage services. These include:

• Well Home Loans, currently offering 2.17% p.a. (2.20% p.a. comparison rate*)

• Athena, currently offering 2.29% p.a. (2.23% p.a. comparison rate*)

• Yard, currently offering 2.29% p.a. (2.32% p.a. comparison rate*)

• UBank, currently offering 2.34% p.a. (2.34% p.a. comparison rate*)

• loans.com.au, currently offering 2.48% p.a. (2.50% p.a. comparison rate*)

“While it’s understandable some borrowers might seek to engage additional help when trying to navigate complex refinancing situations, for many borrowers access to a better interest rate is at their fingertips,” said Godfrey.

To get an idea of the rates currently available, visit our home loan comparison page or browse the selection below. And for a look at some quality options, check out the winners list in this year’s Mozo Experts Choice Awards.“