The growing popularity of neobanks in Australia

Neobanks are becoming increasingly popular in Australia as people look for different avenues to manage their money. The recent banking royal commission has also seen people look for solutions outside the big banks for financial products.

What is a neobank?

Neobanks are digital banks. They don’t have any bricks and mortar branches, and you interact with the bank almost entirely on your smartphone through the neobank’s app. The presence of neobanks has grown rapidly in Australia since 2018 when the government passed legislation allowing neobanks to obtain a restricted authorised deposit-taking institution (ADI) licence for two years as they build up their business.

As primarily app-based banks, neobanks offer additional in-app features that you may not see in your traditional banking apps.

What neobanks are available in Australia?

Many digital banks have established themselves in Australia since 2018. Some of the big names include:

  • Xinja (pronounced zin-ja): Offers products including, ‘Stash’, a high-interest savings account and a transaction account. It will launch loans and mortgages next year.
  • 86400 (pronounced 86-400): Offers high-interest savings accounts and it’s the only neobank that directly provides home loans.
  • Volt: Launching soon. Waitlist customers currently have access to a savings account.
  • Up: Operates on Bendigo and Adelaide Bank’s licence. Offers savings and transaction accounts.
  • Judo: Specialised in business lending.

What are the pros and cons of banking with a neobank?

One of the biggest advantages of banking with a neobank is reduced costs. With no branches and lower demand for resources than traditional banks, you can expect your fees to be lower with a neobank. This also feeds into the ability to offer customers higher interest rates on deposits and competitive mortgage rates.

With a neobank, there’s no need for paperwork or physical forms as everything is done through the app. The tech-focused nature of neobanks also provides customers with data-driven insights, such as identifying higher than normal bills and charges for forgotten subscriptions.

As a relatively new entrant to the industry, the major downside, if you like doing things in person, is that there are no branches to visit. Further, if you like to have a range of banking products in one place, a neobank may not be for you as most in Australia only offer savings accounts, transaction accounts and limited financing facilities.

Is my money safe in a neobank?

All neobanks need to pass APRA’s lengthy regulatory process to secure an ADI. Just like traditional banks, customer deposits up to $250,000 are guaranteed by the government.

How to invest in a neobank?

Investing in a neobank can take place during a capital raise period. Xinja, for example, launched their first retail crowdfunding campaign in 2017, allowing people to invest from just $1,000.

Neobanks represent the changing face of banking and financial sbanervices in Australia and people are now more open to banking outside traditional banks. Before you switch to a neobank, make sure you do your research to decide if it’s the best option for you.

The opinions and recommendations provided are not intended to be relied upon as personal advice as they do not take into account your personal circumstances. You need to assess your own position or call us for professional advice.

 

Get in touch with our expert team to learn more.

A helping hand to step into your first home

Struggling to save for a 20% deposit on your first home? A recent Australian Government initiative may allow you to buy your first home with a much smaller deposit, helping you take that first step to home ownership years sooner.

What is the First Home Loan Deposit Scheme?

The First Home Loan Deposit Scheme (FHLDS) provides lenders with a Government-backed guarantee that allows some eligible first home buyers to purchase a home with a deposit of as little as 5%.

Who is eligible?

  • Australian citizens over the age of 18 who have saved at least 5% but less than 20% of the value of an eligible property. If applying as a couple, both must be Australian citizens.
  • Genuine first home buyers who have not previously owned or had an interest in a property in an Australian home either separately or jointly with someone including residential strata and company title properties.
  • Singles with a taxable income of no more than $125,000, or couples with a combined taxable income of no more than $200,000.
  • Owner-occupiers only. If you move out of the property it will cease to be covered by the scheme.
  • The price of the property must be less than the price cap. Price caps range from $250,000 in rural South Australia to $700,000 in Sydney and some other parts of NSW.

All of these criteria must be met.

What are the benefits?

Normally, lenders require home buyers with a deposit of less than 20% of the purchase price to take out mortgage insurance. This helps to protect the lender if the borrower cannot repay the loan. Under the FHLDS the Australian Government provides a guarantee to the lender, which means you won’t need mortgage insurance. That saves you money, but more significantly, because you don’t need to save as big a deposit, you’ll be able to buy your first home a lot sooner.

What are the disadvantages?

Purchasing a home with a smaller deposit means you will need to take out a bigger home loan, leading to greater total interest payments over the life of the loan.

Will all eligible home buyers benefit from the scheme?

No. Only 10,000 applicants are expected to receive support each financial year. Currently, around 108,000 homes a year are sold to first time buyers, so chances are that, even if you meet all the qualifications, you may not receive approval under the FHLDS. It is, however, still worth applying. Keep in mind that the settlement date for your home loan must occur within 90 days that your home loan becomes guaranteed under the Scheme .

Can the FHLDS be used in conjunction with other first home buyer incentives?

All states and territories offer support to first home buyers, mainly in the form of the First Home Owners Grant, which is basically a cash handout, and in reduced stamp duty. These can be used in conjunction with the FHLDS. Be aware, however, that different eligibility criteria apply to each scheme and that limits and thresholds vary from state to state. Some incentives only apply to newly built homes, and property value cut-offs may differ. Depending on personal circumstances you may be eligible for some schemes, but not others.

How do you apply?

The National Housing Finance and Investment Corporation has appointed a number of major bank and non-major lenders to provide loans under the scheme. Search for “FHLDS participating lenders” to find them.

Applications are made through participating lenders and their authorised representatives, including mortgage brokers. These lenders and brokers will be able to assess your eligibility for both the FHLDS and other first home buyer incentives, and guide you through the application process.

Get in touch with our team for more information!

Five tips to survive a decline in income

Since precautionary measures were heightened to slow the spread of COVID-19, almost one million Australians have lost their jobs. According to the Australian Bureau of Statistics, Australia lost 7.5 per cent of its jobs between 14 March and 18 April. If you’re one of the many Australians who has lost their job, it’s understandable that you may be feeling stressed about managing your finances.

 

Put together a new budget

The first thing you need to do if your income has fallen is put together a new budget. With a reduction in your income, you’ll likely be looking to reduce your fixed and discretionary expenses. Put together a budget that includes your essential expenses such as your mortgage or rent payments, bills, and groceries. This is also a good time to assess which expenses you can do without until your income rises again.

 

Set up payment plans

Losing your source of income can be stressful, especially when you have ongoing payments to meet. If you’ve put together your new budget and you’re not sure if you’ll be able to meet your regular payments, speak to your mortgage lender and other providers about setting up a payment plan. The important thing is that you do this proactively and keep communication open as having these conversations now will put you in a much better place to negotiate.

 

See what support you may be entitled to

The government has announced a range of support packages available to people who have lost their source of income or have had their income significantly reduced. Check which support you may be eligible to receive and organise all of the details you need to apply. Full details about the Federal Government’s measures to support individuals and businesses are available on the Treasury website.

If you’ve lost your income due to illness or injury and you have income protection insurance, check what claims you are eligible to make and what payments may be available to you.

 

Identify potential savings

When you put together your new budget, you probably identified expenses you could do without such as gym memberships and other discretionary expenses. To identify further savings, check if you can switch to cheaper providers for your utilities such as electricity, gas and internet and consider winding back your mortgage payments if you have been paying extra.

 

Seek advice from financial professionals

In stressful times, it can be hard to look beyond the current period of financial stress. However, this is also an opportune time to reset your financial plan for the future. Take this opportunity to speak with your financial professionals, including your mortgage lender or broker, accountant, and a financial adviser to manage your finances now and into the future effectively.

 

Moving forward

At a stressful time for people, it’s important that you don’t feel like you need to weather financial challenges alone. Taking the time to see what support may be available through the government’s support packages is a good place to start. And to set up a financial plan for the future that also addresses your current financial challenges, make sure you speak to a qualified financial professional for tailored advice.