Peer-to-peer mortgages: Opportunity or threat?

by Amy Rosenfeld21 Nov 2013

A new alternative to bank-funded mortgages has taken hold overseas and could break into the Australian market before long, according to the concept’s Australian pioneer.

Peer-to-peer (P2P) lending allows for lending to take place via an online platform between borrowers and independent funders without a bank or other traditional financial institution.

In the US and UK various P2P sites currently offer alternatives to the big players in the mortgage industry, with many operating in niche mortgage markets.

Matt Symons, CEO of Australian P2P site SocietyOne, says the concept is relatively new in Australia, but with large overseas P2P operators looking to IPO early next year, alongside the introduction of comprehensive credit reporting, P2P lending has real potential to gain traction in the Australian mortgage market.

“Australia likes market-place models and they like going direct and I think that’s why so many people opted out of the super environment and have gone into SMSFs, they want to take that control back.

“On the other side of the market more borrowers are questioning if they’re getting the best deal from their existing banks and they’re shopping around, going to rate comparison sites… so anyone who can offer cheaper and better experience is probably well-placed to pick up some of that market.”

This could potentially add another tool to the brokers’ arsenal, and allow them to offer an alternative option to clients that is relatively unknown.

“I think it offers more natural, less competitive alliance to some brokers. If you can offer to clean credit borrowers a demonstrably better rate that adds immediate value, and often the buyer is not aware of this as at the moment there is no mainstream advertising. It gives the chance to surprise and hopefully delight the clients with a great loan, 100% digital process, nice and simple, and by the way these guys are not trying to upsell or cross-sell the homeloan and cut brokers out of the commission."

Tanya Sale, CEO of Outsource Financial, however, feels P2P lending will be nothing more than "a fly-by-nighter".

“I can see it working overseas because of issues they’re still experiencing with funding, whereas in Australia we’re going from strength to strength  - you can see from the profitability of our majors how strong the funding and borrowing component is.

“I think it has the potential to go down the path of something similar to non-conforming lending, people who can’t get funding from normal sources, but in Australia we have a lot of sources for personal loans and a lot of unsecured lending, so where’s the space for P2P?”

But it’s these exact reasons that P2P has the potential to take off here, says Symons.

“If you’re making that much margin clearly there are very low default rates and borrowers are paying something other than risk-based pricing. What happens is low-cost competitors can come in in that environment and say to credit-worthy borrowers ‘You may not be getting the best price’.

It’s also a much more validating experience than applying through a faceless credit assessor, waiting two days and hoping and praying someone comes back and says you’re worthy of this loan and here’s the price. That’s something that makes P2P work, is the power of connecting directly.”