Engaging a $1.1 trillion mortgage industry

As banks confront another year of subdued growth on the mortgage front, a particular demographic is emerging as a potentially lucrative market segment. 

The 2020 decade brings with it a raft of challenges for the mortgage industry. Amid tighter regulatory scrutiny – it was only in December when ASIC released its revised responsible lending laws – growth remains a key challenge. 

Mortgages make half of the banks’ revenue. On E&Y’s numbers, the 2019 full year results for the major banks showed that system growth for housing credit fell from 5.2 per cent to 3.1 per cent over the 12 months to September 2019. 

As E&Y highlights, declining market share and margin pressure as interest rates fall suggest that the major banks will struggle to grow housing credit in the next year. No doubt their loan book will be keenly monitored in their 2020 half-year results. 

RFi Group chief operating officer Alan Shields and speaker at this month's RFi Group Mortgage Innovation Summit sees a big opportunity in the millennial market and predicts that by 2025, millennials will account for half of all mortgage balances outstanding – the equivalent of 1.1 trillion in lending. 

Shields believes lenders should prioritize this market amid a benign environment. 

The latest RFi Group data has highlighted that mutual and regionals and online banks have picked up a higher proportion of people who have chosen to switch their mortgages – the bulk being a younger cohort. 

Mutual banks garnered an 8 per cent increase in switchers while for regionals and online banks, growth in the number of switchers was up 2 per cent.

However, Shields urges caution over the data adding that younger consumers generally are more likely to switch as they are at a stage in life where they need to buy homes, start families, get married etc. 

“It’s driven by need for products, rather than a particular value proposition.” 

Nevertheless, such a value proposition can be developed by financial institutions. 

For Shields, if banks are to engage millennials, the journey has to start with savings. 

According to RFi Group research, a house deposit is the second most important factor, behind travel for millennials. 

“This has been a top three savings goal for millennials for more than a decade, through ups and downs of credit availability and property prices,” Shields said. He added that engagement of these customers then, begins well before the mortgage is even thought about. It begins when they begin to bank.

The way they will engage will also be key. 

Gone will be the days of mass advertising in mainstream media. 

Shield says millennials are more likely to watch Youtube daily (42 per cent) than commercial television (32 per cent) and 65 per cent of millennials visit Facebook or Instagram daily. 

With open banking and the rise of personal finance management tools – which according to RFi Group appeal significantly more to millennials – Shields says the range of tools that help to engage a customer through their savings journey is also growing. 

“Understanding which ones to develop/partner with will be key,” he said. 

The full report is featured in our February edition of the AB+F Digital Magazine.

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