When your real estate agent decides to become a bank

Originally posted on Medium on August 2nd, 2019.

Some time ago I referred to Hello bank! as a bank that found out that they are very well positioned to become their customer’s real estate manager. They integrated immovlan.be, a real estate website, in their platform to help their clients to look for a house.

This week, I witnessed an initiative in the other direction, immovlan.be’s competitor immoweb.be has ambitions to start offering mortgage loans. For the ones that don’t know immoweb.be: this is a platform where real-estate is offering for purchase and rent.

Today they provide a platform to bring supply and demand together. Tomorrow they want to facilitate the sale with a mortgage loan offer. That is very briefly what it is all about.

It is not the first platform that announces to go in the mortgage business by the way. In June, the Dutch player Funda hinted in the same direction. Rumors say they will collaborate on this with Independer, the Dutch equivalent of Spaargids.be, which are both owned by De Persgroep.

So what’s behind this?

There was one particularly interesting point of view in the interview with Valentin Cogels, the CEO of Immoweb, which may sound like a dull detail, but it is highly important in the way we should look at these financial processes.

To understand the relevance of this “dull detail” you should know that most sales agreements are under the condition that the potential buyer finds a bank that is willing to provide him with a mortgage loan.

According to Mr. Cogels this results in an estimated 20% of sales that are canceled at the end of the process in the Brussels region for example. Immoweb wants to optimize the process. They want to provide the mortgage loan offer at the beginning of the process, so that potential buyers can already provide a guarantee at the moment of visiting the real estate they are interested in, to avoid the 20% churn in an already long process of selling real estate.

Because the respective house is already on their website, they can shorten the administrative process for the mortgage loans (as most of the details on the house were registered beforehand).

Currently, they don’t know yet how they will finance the production of mortgage loans or whether they will collaborate with banks to provide mortgage loans.

There is one certainty: this may be a considerable impact on the mortgage business as we know them, and not only the mortgage business…

Immoweb.be is mostly the first to know if a customer is looking for real estate

Already in the phase of “looking what’s on the market” customers are first on immoweb.be. This means they are uniquely positioned to approach consumers well before the bank does in offering mortgages and to push it during the whole process the customers go through before deciding to buy a new house.

If this also impacts the ease of getting the house of your dreams, consumers will be easily convinced to apply for a mortgage at Immoweb. If their plan materializes there will be an impact: the guarantee by Immoweb that a potential buyer has the means to pay the house, will bring this person in a pole position for a sales deal.

On top of that, the economic conditions today pushed interest fees for mortgage loans so low that that most of the offers on the market are very comparable and highly similar.

It may even raise a more fundamental question: are mortgage products a commodity or can customers be convinced by additional services in exchange for a (slightly) higher price?

I mean, who cares about the difference between 1,27% and 1,35% if the 1,35% provides you easier access to the house of your dreams?

We are getting in a period where consumers are taking more parameters into account then just price in the process of looking for the right mortgage loan. Service may suddenly start playing a role for consumers in deciding where to sign for a loan.

That is how immoweb.be tries to build a relevant offering.

Immoweb.be may indirectly also impact the daily banking business of banks

Today most long-term bank relationships are set through the relation of the parents. As a kid, very often you have an account in the same bank as your parents have. This continues until you become a more interesting consumer and banks start to seduce you with good deals and better digital services… Even then bank switching remains low.

Often the switching is triggered only at the moment you look for a mortgage loan, isn’t it? On top of that, having a mortgage loan at bank X creates an incredible stickiness to this bank X. This loyalty element is one of the reasons why the mortgage loan business is to highly competitive in Belgium.

What may happen when a third-party gets a considerable share of the mortgage market? Other factors will start playing a role when deciding who your preferred bank for daily banking services will be.

So in a way, the move of immoweb.be may also influence a customer’s sensitivity to digital daily banking services, and more bank switching in the long run.

Will there be a financial impact for banks in case immoweb.be would start producing themselves?

The financial impact in case immoweb.be starts producing itself is hard to say. What is clear is that they need funding. I can hardly believe they will start offering savings accounts themselves, there is not direct fit with their core business.

This means they have to collaborate with banks as many other specialized mortgage institutions do. It is common practice to buy and sell mortgage portfolios (remember where the financial crisis came from?).

So for some banks, there will be no impact: they can keep offering savings accounts, and make a margin on the lending portfolios they purchase. This will lead to lower margins, but also lower handling costs (since they don’t take the acquisition cost).

The Banking Your Real-estate agent

I’d like to come back one more time on what I started with, i.e. that Hello bank! is offering in its app an online platform for real estate.

In an interview yesterday, Erik Van Den Eynden, CEO of ING Belgium, indicated they are also investigating how their bank could grow their role in the customer journey of buying a house. They are currently investigating how they can offer a similar service like Hello bank! and perhaps expand it do an estimation of the value of the house one likes to sell.

Who knows? Maybe we are witnessing the start of a new partnership here with Immoweb.be?