It's been hard days for the fixed interest mortgage fintech
Huffle's CEO warns fintech lending could die off if partners cannot be found.
Huffle chief executive Damian Horton has warned that his company may close if it cannot find a banking partner soon and that all fintech lenders could meet a similar end.
In a memo seen by AltFi, the fintech mortgage startup cited low commitment from banks, big four dominance and bureaucratic inertia as the three icebergs blocking its path. It also warned that these same problems could doom other fintech lenders and maybe fintech lending itself.
“The reality in Australia is that you need to partner with an established bank to enter the market,” the memo said.
“The securitisation market is not deep enough and becoming a bank has its own challenges.
“My biggest concern is that whilst other lending FinTechs have managed to launch… they will bump into similar issues when the look to scale.
“Unless they can open a robust securitisation channel or collect their own deposits, they won’t be able to reach a sustainable business model.”
Huffle is a startup offering fixed term mortgages. Australia is different from the US and UK in that almost all mortgages come at variable rates.
Variable rates are good for banks: they allow them to reprice their mortgage book and reduce risk without hedging tools, Mr Horton explains. But they’re less good for borrowers, who get saddled with rate hikes they have no control over.
By offering homebuyers the security of a long-term fixed rate and no early repayment restrictions or fees, Huffle has hoped to modernise and break into the lucrative Aussie home loan market.
“We have a tidy model [that] earns a tidy return,” Mr Horton said over the phone.
“The opportunity is still there. It’s a shame for home owners who can’t lock in a rate while interest rates are low.”
But Huffle’s new idea has proved a double-edged sword. That is, because banks have no familiarity with exclusively fixed rate mortgages they have struggled to understand what Huffle was doing.
“The banks don’t seem to be in the headspace for it. Outside of the big four everyone is a bit scared to say we’ll stick our neck out,” Mr Horton said.
“We haven’t been asked once about [interest rate] convexity in our product… No-one in Australia has asked us about that.”
He added that the bureaucracy of the large banks has been so vast that it was sometimes difficult to find the right person to speak to.
In the coming months, Mr Horton says that his company will make a final play at finding a partner. Failing that, Huffle will be forced to fold.