HELOC borrowers increasingly likely to shop for alternative funding

Study shows HELOC providers face growing threat from alternative lenders

HELOC volume has been limp in the last year despite rising equity levels thanks to rising interest rates and new tax laws, and now HELOC providers are facing increased competition from alternative lenders.

A recent survey by J.D. Power revealed that homeowners are researching their options, looking into alternative funding sources before selecting a HELOC.

Two-thirds of HELOC customers who secured their loan within the past two years considered alternative products first, according to J.D. Power’s survey of more than 4,332 HELOC borrowers.

This figure is up 41% from just a few years ago, revealing the increased competition HELOC lenders are facing in the current climate.

Those who investigated alternatives named variable interest rates, overextending debt and higher payment after the draw period as points of concern.

Part of the problem, according to J.D. Power?

HELOC lenders are missing the mark when it comes to digital offerings.

“Despite rising use and satisfaction with digital channels in virtually every other aspect of retail banking, satisfaction is lowest among HELOC customers who gather information entirely online,” the survey stated.

John Cabell, leader of Global Business Intelligence Practice at J.D. Power, said HELOC lenders can alleviate customer concerns by publishing clear information about interest rates and payment schedules on their websites.

Cabell said enhancing their digital presence is one step lenders could take to fend off the competition.

“Customers are being wooed by increasingly sophisticated competitors. Right now, HELOC providers are struggling to deliver digital experiences that are in line with customer expectations,” Cabell said. “That is becoming a major drag on future business as new, digital-native competitors enter the marketplace.”

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