About 40% of all mortgage customers have fixed rates; $500 billion will need to be refinanced over the next few years, Jarden estimates. Tic:Toc founder Anthony Baum said this will happen at a time when “refinancing through digital proposals or brokers is easier than it has ever been.”
Tic:Toc receives funding applications for $500 million in mortgages per month, which is relatively stable, but a greater proportion is now driven by refinancing, up 80% from 60% year-on-year last.
But like the big banks, Tic:Toc’s credit criteria mean it can’t fund all of these apps. Currently, it funds about $200 million per month.
The partnership with AFG allows Tic:Toc to refer clients outside of its criteria to around 70 lenders in the AFG network. By capturing application data, Tic:Toc’s brokerage service can facilitate the process of applying to alternative lenders.
The arrival of the fast-paced digital mortgage alongside rising interest rates and the expiration of fixed-rate loans is expected to structurally change the mortgage market by reducing the average life of home loans, Mr. Baum.
Westpac announced last week it could approve some mortgage applications in 10 minutes, while Commonwealth Bank in May launched Unloan, a self-service product bypassing brokers, and said it would pass on costs mounting cheaper on customers.
“The reality is that any opportunity for customers to take advantage of this in a very competitive market is really going to see the first downward pressure on the average home loan term for a while,” Baum said.
“Brokerage will evolve. Digital lending will evolve. We want to work together [with AFG] to allow the industry to have more automation.
Aussie Home Loans uses mortgage execution technology developed by Tic:Toc for its digital home loan offering announced last year.
AFG said it expects the average tenor of its five-year home loans to decline as it prepares for $11 billion of loans to be fixed rate this year, $27 billion next year and $10 billion in 2024. This should spark more conversations with brokers.
“Clients will return to their broker when the fixed rates expire, which are subject to interest obligations and are therefore forced to shop the client,” Damian Percy, managing director of AFG Securities, the lending arm of AFG.
“Refinancing is a particularly strong area. As customers visit brokers, we are seeing an increased commitment to improving their financial situation and reducing one of the biggest expense items in the household budget,” he said.
“Inquiries are on the rise and as fixed rates ease over the next 18 months, we expect higher ongoing refinance rates, which makes this partnership with Tic:Toc even more attractive. because they have a different set of clients, in a different context, than the traditional brokerage room.
AFG CEO David Bailey said the aggregator would review Tic:Toc’s technology and consider deploying it.
“We’re very good at screening lending products with our lending platform. Tic:Toc has built in the data capture and validation of that information. By putting it together, we can tell lenders, ‘Here’s a client who was valid”.
“We can remove friction from your process and achieve a faster, more consistent turnaround.”
AFG, whose share price has risen 27% in the past month, will release its annual results on August 26.
Tic:Toc said in February it would consider an initial public offering once $1.5 billion in monthly mortgages “hit the platform,” depending on market conditions. He plans to announce new distribution deals in the coming months.