Is it safe to get a home loan through a Neobank?

Is it safe to get a home loan through a Neobank?

With so many products and services available online it is no surprise that home loans are also accessible without the need to go into a branch. But is it safe to get a home loan through a Neobank? What are the pros and cons and are Neobanks better than traditional bricks and mortar financial institutions?

What is a Neobank?

A Neobank (also known as a ‘digital bank’) is a type of bank run solely online and without any physical presence, i.e. it does not have any branches.

Neobanks were first established in Australia in 2018, with just a handful of offerings at the time. In the years since popularity and competition have increased and there are now around a dozen Neobanks operating in Australia and attempting to disrupt the traditional banking sector.

How do you get a home loan through a Neobank?

As Neobanks are operated entirely online you will need to apply for your home loan accordingly. One of the key benefits of applying for a home loan with a Neobank is that they prioritise and have invested a lot in their user experience, so the online application process is optimised and the wait time for approvals can sometimes be shorter than traditional banks by a matter of weeks.

Mortgage brokers can also work with Neobanks, so if you are using a broker they may find that a loan from a Neobank is one of the most suitable options for you.

Are Neobanks better than traditional banks?

All products and services carry pros and cons, including Neobanks.

The major benefit of a Neobank is that it has smaller start-up and running costs and is, therefore, able to pass the savings on to its customers in the form of lower rates. On the other hand, one of the biggest benefits of traditional lenders is that they are able to provide associated products such as offset accounts because they have Authorised Deposit-Taking institutions, unlike a lot of Neobanks. Customers who like to have all of their banking - including everyday banking, business banking, and credit products – with the one institution will probably find that a Neobank is not the right bank for them.

Another downside to borrowing from a Neobank is that they are often unwilling to lend to applicants that they do not deem to be straightforward. Where traditional banks can be more lenient with the types of loans they offer, including cross-collateralisation, Neobanks tend to offer one loan for one asset. Those who are self-employed may also run into difficulties being approved by a Neobank.

Is it safe to get a home loan through a Neobank?

Neobanks are governed by the Australian Prudential Regulation Authority (APRA) and are therefore no more or less ‘safe’ than a traditional bank, in fact, some Neobanks are even backed by Australia’s biggest and most well-known banks.

The risk of a Neobank failing is, in theory, no greater than that of a traditional bank because they are subject to consistent governance by the same regulator and must operate under the same strict Banking Code of Practice. However, longstanding traditional bricks and mortar banks inherently instil confidence in most consumers because of their name, reputation, and the consumer’s ability to physically enter the premises, which is impossible to do when you bank with a Neobank.

No matter what type of financial product you are aiming to be approved for, or what type of lender you would like to work with, you should always shop around and seek independent financial advice before locking yourself in to ensure it is best suited to your current and long term financial objectives and aspirations. Working with a mortgage broker is a great way to take the grunt work out of looking for the best deal on a home loan.

If you are in the market for a property and need advice about which home loan is best for you, our experienced Mortgage Brokers can assist. Give them a call today on (07) 4052 0700.