An online application from a bank is quick, costs nothing, and compares exactly one lender’s products against one credit policy. Nothing in it is required to be in your best interests, because that duty applies to mortgage brokers, not to a sales channel.
Banks offer online home loan applications now. A short form, a few screenshots of payslips, an answer in principle before you’ve finished your coffee. It costs nothing. It’s a smooth product, and in my opinion it’s an expensive habit, because what it’s optimised for is getting you to apply to one lender without ever finding out what the rest of the market would have said.
What “free” means here
A broker’s service is free to you in the same sense: no fee for a standard residential loan, because the lender pays a commission. So this isn’t a page about brokers being free and banks charging. Nobody’s charging you at the door.
The cost I mean is the cost of the loan you end up in versus the loan you could have been in. That cost is invisible on the day and very visible over the life of the loan. The ACCC measured that gap in its 2020 home loan price inquiry, and we go through the numbers in Loyalty to your bank is a tax on your future. That’s the price of not comparing.
What the app is designed to do
It’s designed to be fast, so you don’t have time to shop. Speed is the feature. The whole pitch is that you can do it now.
It’s designed to keep you inside one bank’s product set. It will show you that bank’s products and nothing else. It has no way to show you anything else, and it’s not going to suggest you look.
And it’s designed to assess you against one credit policy. Lenders differ on how much rental income they count, and we work through a recent example in Mortgage broker vs bank. It tells you a number, or it tells you no.
Does an online application owe you a duty?
This is the part I’d want every first home buyer to understand. Since 1 January 2021, a mortgage broker recommending a loan has had a legal best interests duty under the National Consumer Credit Protection Act. An online application from a bank does not owe you that. Nothing in the app is required to be in your best interests. It’s a sales channel with a good user interface.
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The best interests duty isn’t decorative. It means a broker has to act in your interests and put them ahead of their own when recommending a loan, and can be held to that. The app can only ever put you in its own.
What does an approval actually tell you?
Yes. And that’s exactly the problem with judging the app by whether it said yes. An approval tells you one lender’s policy accepted you at that amount. It doesn’t tell you a second lender wouldn’t have approved more, or at a better rate, or with an offset account that suits how you actually use money, or without the package fee.
We see people come in with an approval in hand from an online application, happy, and leave with a different lender because another lender’s policy supported more, or the same amount on better terms. They weren’t wrong to be happy. They just didn’t know what they didn’t know, and the app is built so that you never find out.
When the app is fine
If you’ve already done the comparison, know the market, have a simple profile and just want the transaction done, an online application at the lender you’ve chosen is a perfectly good way to lodge it. The problem starts when the app is the whole comparison.
Also, now and then the right product for someone is one we can’t reach through our panel, and a broker with a best interests duty should say so. We do.
What I’d do instead
Fill in the app if you like. Then spend an hour with someone whose job is to put your file in front of the lender whose policy suits it, and who has to be able to explain why. If the answer is the same bank you started with, you’ve lost an hour and gained the certainty. If it isn’t, you’ve gained the difference, every month, for as long as you have the loan.
Call 02 9037 2825 or book with one of the brokers. Bring the app’s approval if you’ve got one. We’ll tell you what it means.
This is general information only and doesn’t take your circumstances into account.
Frequently Asked Questions: The Bank’s ‘Free’ Online Application Costs More Than It Looks
Is it cheaper to apply for a home loan directly online?
There is no arranging fee either way. What differs is whether anyone compared lenders before you applied.
What does an online approval prove?
That one lender’s policy accepted you at that amount. It says nothing about what another lender would have approved, or on what terms.
Should I use the bank app at all?
It is a fine way to lodge an application once you have decided. The problem starts when the app is the whole comparison.
Related reading
- Why Choose a Broker Over Going Direct to a Bank?
- Mortgage Broker vs Bank: Why a Lender Panel Beats One Bank
- Loan Lounge vs the Big 4 Banks: A Side-by-Side
- More on the services we arrange
Book a broker or find a broker near you. Or call the Burwood office on 02 9037 2825.
General information only. This article does not take your objectives, financial situation or needs into account, and is not financial product, tax or legal advice. Lending criteria, fees and rates vary by lender and change without notice. Loan Lounge, Australian Credit Licence 515608.