$1 billion idea: ‘Uber for home loans’
HERO Broker has been around for only a few weeks, and already the do-it-yourself home loan service has signed up a billion dollars in loans. The service, which has been described as an Uber for home loans, eschews your traditional broker, using an online platform for clients to find their own home loan deal.
However finance industry experts have warned people to be cautious about the service, pointing out that mortgage brokers bring a wealth of knowledge and experience to help homeowners get the best deal.
Sydney project manager Zac Collett is one of 2000 Aussies who have signed up to Hero Broker in the last couple of weeks. He received an $800 cash bonus for signing on, and he'll save $25,000 over the life of his $300,000 home loan with his new, lower interest rate.
Hero Broker founder Clint Howen explains the service gets clients better mortgage rates by charging lenders a lower commission than traditional brokers.
"We were pretty taken back by the feedback - on the first day we had a thousand people sign up, and every day after we've had a few hundred. It's been very consistent," Mr Howen, 30, told news.com.au.
"I think it's a winner because we have great rates and you get rewarded by cutting out the broker."
USE WITH CAUTION
Mike Felton, CEO of the Mortgage and Finance Association of Australia, said consumers should use caution.
"My personal belief and that of the MFAA is that the consumer should be cautious - the mortgage market is a very complex market and mortgage brokers have the required experience to make informed decisions for their clients," Mr Felton told news.com.au.
"Brokers take the time to understand the needs and goals of each customer. I don't think consumers would want to be on their own when it comes to working through the process of financing the biggest purchase they will ever make.
"The long-term cost of getting this wrong is very significant.
"Consumers need more support than a website. A technology platform will not replace the experience, knowledge and service that a broker delivers to a consumer."
Meanwhile, certified financial planner and money mentor Adele Martin said the use of technology was a step in the right direction, and she liked that Hero Broker was independent and not owned by a bank.
"I love that we are being able to use technology in the finance space - it will definitely disrupt the space, and over time, more technology coming in will make it convenient, easy, and more affordable," she said.
A recent report on mortgage brokers released by Deloitte found that the average Australian broker had 13.8 years of industry experience.
"Mortgage brokers make mortgage markets work better," the report said. "Mortgage brokers increase choice and competition between lenders, leading to better service levels and competitive mortgage pricing."
CASHING IN ON CUTTING OUT THE MIDDLE MAN
The concept of Hero Broker is simple enough - you search for the best deal and apply using an online form, upload your documents, and the application is sent off for approval.
"Basically we went to our lending partners and said we won't charge you 0.7 per cent, which is the commission that brokers get - we will charge you 0.3 per cent, and 0.25 of that will go back to the consumer," he said.
Since launching earlier this month, Mr Howen, a Sydney-based mortgage broker, has come under attack from the brokerage community. Social media trolls and aggressive emails have attacked the idea - but that's not stopping him.
He said more than half of Australian home loans now go through a mortgage broker, with lenders paying over $2 billion a year to brokers in commission.
"We think this $2 billion is better off going into the pockets of Australian families," he said.
"For too long, brokers have been pocketing thousands of dollars to do a job that everyday Aussies could easily do themselves with the assistance of technology.
"The taxi industry wasn't too happy when Uber entered the market, nor was the hotel industry when Airbnb emerged.
"But, at the end of the day, Hero Broker is driven by one goal - offering a better, fairer deal for everyday Australians."
SAVING TENS OF THOUSANDS
Zac Collett, from Randwick, Sydney, used Hero to find a rate with Mortgage House that was 3.69 per cent - down on his current rate of 4.09 per cent.
"Up front I got about $800 backand over the life of the loan it's (worth) about $25,000, which really spoke volumes to me as I can put that money towards renovating (the) kitchen or bathroom in my property," the 31-year-old said.
"Basically the process wasn't any different than collecting the documents for my old bank with the ease of not having to leave my house or losing time from my job by making appointments to meet the bank.
"The idea of doing it yourself was new to me but made sense as most things I do are online."
Mr Howen said many Australians pick their bank based on loyalty, and rarely shop around for a better deal - when they should.
"We thought (our clients) would be all millennial and Gen Y - but I'm surprised at how much of the older generation are doing it already," he said.
"I've had people in their 70s - and yesterday a 59-year-old tradie from WA was going through the process."