The $27.1 billion revenue opportunity in mortgages
Banks have a significant opportunity to convert the millennial customer into the home buyers of the future.
Speaking at the RFi Group Australian Banking Innovation Summit in Sydney on Wednesday, RFi Group chief product officer Alan Shields highlighted research which revealed that this segment s predicted to grow to $27.1 billion.
“Today, millennials account for one in four mortgages and 31 per cent of balances, but by 2025, as well as being the most important consumer group for banks in revenue terms, they will account for more than half of all mortgage balances outstanding – the equivalent of $1.1 trillion in lending,” Shields said.
At the same time, lenders face a more benign growth market. Here he sees opportunities for banks in growing their millennial customer base into mortgages by understanding their financial goals and behaviours.
The journey starts with savings.
According to RFi Group data, a house deposit is the second most important factor, behind travel for millennials. Indeed, this has been the top three savings goal for millennials for more than a decade, through ups and downs of credit availability and property prices.
“Engagement of these customers then, begins well before the mortgage is even thought about. It begins when they begin to bank,” Shields said.
According to Shields, the main financial institution relationship is still key.
“Almost 80 per cent of millennials that do not have a mortgage say that they would go first to their main bank for that mortgage,” Shields said.
Therefore, those organisations that have an adequate or greater representation of millennials in their MFI bases will therefore stand to have the advantage.
According to RFi Group research, the Commonwealth Bank and ING have a greater representation of this segment in their customer base compared with banks such as Bendigo Bank and Westpac.
However, the main bank hold is still eroding.
“While the main banks are currently at an advantage, when we look at millennials that already have a mortgage, we find that they consider more lenders on average than other generations and that they were more open to other brands generally through the application process,” Shields said.
“Set that against the fact that the broker market is growing and millennials are the most likely to use a broker, and you can see that if as a main bank you haven’t done enough to engage your future customers, then you can certainly not count on providing them with a mortgage.”