If You Want a Low Rate, You’ll Have to Be Good

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The recent changes in home lending that borrowers have experienced are tiny to what will happen in the next few years as the banks radically transform the mortgages they offer.

Until recently, the differences between lenders was not that much more different than, say, Holden v Ford.  But, some changes are afoot that will make some of us bigger winners and others bigger losers when it comes to getting a loan.

As of now, if you are PAYG, borrow $500k on a $750k property and have a clean credit history, the banks are pretty-much likely to make you a similar offer.

And even within the same bank the deal was pretty-much the same such that valuable clients were cross-subsidising less lucrative ones.

However, in an interview with the Australian Financial Review last weekend, ANZ’s CEO (Shayne Elliott) showed how the bank is identifying blue-chip clients and will be offering compelling rates to win good customers.

In future, ANZ will be using risk-based pricing; the less risky a customer you are, the lower the rate you will be offered.

One way that the banks are moving towards risk-based pricing is by the application of fintech (financial technology); increasingly sophisticated software can analyse things like your credit and employment histories and work out if you are such a good client that the bank will offer you a super-duper deal.

Of course, fintech relies on quality data – and here is where you can influence the data a bank has on you.  One way you can do this is by improving your bill-paying habits.  Until recently, your credit file primarily recorded your black marks; if you were a late-payer or were in default, this would be recorded against your credit file.

But now, the federal government is moving credit files more towards positive reporting; the prompter a bill-payer you are, the better your credit score.  Lenders will be able to see data such as how well you have been repaying your credit card, personal loan and mortgage over the past 24 months.

Positive credit scoring is used in many other countries.  In the US, there are even lenders that can have an approval for you in a couple of hours sue to a combination of fintech and positive credit scoring.

In future, all banks will offer better clients better rates.  What are you going to do to get that rate?

 

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