‘Very aggressive’: Broker boss warns big bank discounts could be unsustainable

Lendi Group boss David Hyman says the growth in interest rate discounts and cashbacks that banks are offering to lure home loan customers may be unsustainable, as the broker bets technology can deliver it a bigger slice of the mortgage pie.

Hyman is chief executive and a co-founder of Lendi, a digital mortgage broker that last year merged with Aussie Home Loans, and has shareholders including the Commonwealth Bank, ANZ Bank and Macquarie Group.

David Hyman, chief executive of mortgage broker Lendi.Credit:Rhett Wyman

The merger made Lendi the largest retail mortgage broker in the country, giving it a front-row view of major shifts in home lending caused by rising rates.

One such change this year has been the surge in refinancing, as banks have offered cashbacks worth thousands of dollars and deep interest rate discounts to borrowers who are prepared to dump their existing bank. However, Hyman questioned how sustainable it was for the banks to continue ramping up these deals for new clients.

“I don’t know that it’s sustainable in the long term. We are seeing very, very aggressive behaviour, things like cash-backs, very low rates, etcetera. I think at the end of the day when you compete on price it’s always a race to the bottom,” Hyman said in an interview.

A consequence of the competition between banks is a trend known as the ‘loyalty tax’: banks have passed on the full value of this year’s interest rate increase to existing clients, while offering new customers more competitive rates. Hyman predicts this growing gap between what existing and new customers pay for credit will be a “call to arms.” Bank analysts, meanwhile, worry the intense price competition will dampen the profit boost banks get from rate rises.

“I don’t know that it’s sustainable in the long term. We are seeing very, very aggressive behaviour.”

Hyman adds that as well as competing aggressively on price, banks are increasingly competing through lending policies and approval processes. “There’s this emerging theme of competing on policy and process vis a vis price,” Hyman says.

Lendi was started in 2013 by Hyman and fellow co-founders Sebastian Watkins, Martin Lam and Mark Kalajzich.

Hyman, who is married and has three children, grew up on Sydney’s North Shore and initially worked in the world of fast-growing consumer technology. He says he was struck by the complexity of getting approved for a loan, and Lendi set out to simplify the process through technology.

The company emerged during the early stages of a fintech boom, signing up heavyweight shareholders including Macquarie and ANZ Bank before a 2021 merger with Aussie (the mortgage broker founded by John Symond, which helped drive more competition in banking in the 1990s, before it was bought by CBA).

Since Aussie Home Loans joined forces with Lendi the business has continued to grow.

To the surprise of some, Lendi emerged as the dominant player in the Aussie merger, despite Aussie having a far larger loan book. Hyman responds that a company’s value can also be measured by how investors see it’s future growth potential, pointing out tech companies often attract a premium.

He describes Aussie Home Loans as “the original disrupter in terms of bringing competition to banks,” and says Lendi’s strategy is to bring together Lendi’s technology with Aussie’s well-known brand, and its army of brokers. In its first full-year since the merger, Lendi has reported 35 per cent annual growth in loan settlements to $33.6 billion. The company, which has not reported full financial results, says it has a market share of 6.3 per cent of all new loans.

Hyman says a key goal since the Aussie merger has been to integrate the two businesses, and the next phase will focus on rolling out Lendi’s broking platform to Aussie brokers, with a view to making it easier and quicker to write loans.

While much of banking is being automated, Hyman believes getting a mortgage will always involve dealing with people, so the company wants to equip brokers with better technology.

“If you fast-forward 20 years, whether they’re doing this digitally, customers will still want to look somebody in the eye and say have I made the right decision – this is such a big transaction. But the people that they’re dealing with will have tech that sits behind them to make that experience much better for everyone,” Hyman says.

As the company bets on mortgage lending becoming more digital, it has also signed a joint venture with Domain (majority-owned by this masthead’s owner, Nine). The venture, Domain Home Loans, reported 69 per cent settlement growth last year, and Hyman claims targeting potential borrowers via the property portal could “reshape market share over the next five to ten years.”

Domain’s major rival REA Group has also made a similar attempt to sell loans digitally to users of its property advertising portal, last year buying Mortgage Choice.

Lendi, like all mortgage brokers, is facing a period softer growth in new lending as house prices fall in response to sharply rising interest rates. But against this, Hyman says he remains “cautiously optimistic” about lending activity.

He points to the strength in refinancing activity (which still results in commissions for mortgage brokers), and in a similar vein to the recent bank commentary, argues low unemployment and high savings rates can keep household finances resilient.

“The average mortgage is still paid ahead many, many months into the future off the back of those balances, so we think there’s quite a bit of stability as we go through this tightening cycle,” he says.

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