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Online Mortgages Exploding in the U.S.

Internet connectionThe volume of mortgages sourced on the Internet shot up 75% last year in the U.S.

Branch-sourced mortgages dropped 16%.

These numbers reflect a clear trend and they are not an aberration. Nor is online mortgage growth a U.S.-only phenomenon.

South of the border, 60% of online banking customers get their mortgage from a lender that is not their primary bank, according to Accenture. We don’t have similar data from Canada but we know the percentage here is less. (Canadian banks are more concentrated and dominant, and U.S. originators are well ahead of us in the online space.) Despite that, the above stats suggest that loyalty to one’s home bank is not a given among “e-mortgage” consumers.

Stages of growing tree for your designIn the next 24-36 months, online origination volumes (consisting of mortgages that are applied for and processed online) will steadily grow in Canada. Catalysts will include:

  • Rate competition and margin compression (which will force lenders to find cheaper ways to acquire customers and more efficient ways to process applications)
  • Consumer acceptance of online security
  • Compelling online user experiences
  • Intuitive interactive self-help
  • Live support
  • Simplified user interfaces

No one knows how much of the pie online mortgage models will take. The numbers are minuscule at the moment. But given enough time, it’s not unthinkable that online mortgage market share could track that of the discount stock brokers. In that industry, about one-third of Canadian investors are now advising themselves and trading only with an online discount brokerage. In terms of accounts, there are 4.8 million online/discount brokerage accounts in Canada versus 5.8 million full-service accounts, according to Investor Economics Retail Brokerage and Distribution Advisory Service, Winter 2014.

Some will refute the online stock broker/mortgage comparison, arguing that managing your biggest financial obligation requires more advice and hand holding than picking securities for a retirement account. This author has done both (for a living) and would submit that choosing the right mortgage is decidedly easier than beating the market.

Rob McLister, CMT (email)