Home Equity Line of Credit Providers Face Growing Threat from Alternative Lenders, J.D. Power Finds
Customers Struggle with Digital HELOC Channels, More Likely Than Ever to Shop for Alternate Funding
COSTA MESA, Calif.: 14 March 2019 — Despite record-high levels, new home equity line of credit (HELOC) originations have been steadily declining as a perfect storm of rising interest rates, new tax laws and growing competition from alternative lenders has crimped traditional HELOC growth. According to the J.D. Power 2019 U.S. Home Equity Line of Credit Satisfaction Study,SM released today, HELOC customers are more likely than ever to shop for alternative sources of funding and HELOC providers are falling short on digital offerings.
“HELOC providers have a privileged position in the consumer lending space by virtue of the relationships they already have with home loan customers, but they cannot afford to rely on those relationships alone to generate new originations,” said John Cabell, Global Business Intelligence Practice Leader at J.D. Power. “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. That is becoming a major drag on future business as new, digital-native competitors enter the marketplace.”
Following are key findings of the 2019 study:
- Alternative lenders pose bigger threat: Two-thirds of new HELOC customers who obtained their line of credit within the past two years considered alternative products when shopping for their HELOC, a figure that is up from 41% just a few years ago. Likewise, younger HELOC customers (under 40 years old) are far more likely to consider alternative products. On average, these customers consider 2.5 different loan products, including personal loans, credit cards and cash advances.
- HELOC providers missing the mark on digital: 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 (819 on a 1,000-point scale) vs. those who gather information in person or via phone only (836) and those who used both online and in-person channels (864).
- Concerns about interest rates, overextending debt drive shopping behavior: Customers concerned about opening a HELOC are significantly more likely to consider HELOC alternatives. The most common concerns among those who shop for alternatives are variable interest rates, overextending debt and higher payment after draw period.
- Long-term HELOC customers less engaged than new customers: Existing HELOC customers who have had their line of credit for more than two years are notably less satisfied with their lender than are new customers. Longer-term customers also have lower levels of product understanding and awareness of offerings. Satisfaction increases the more engaged the HELOC customer is with their lender.
“There are some very obvious areas where HELOC providers could make tremendous improvement by taking certain steps,” Cabell said. “One of the easiest is alleviating customer concerns during the shopping process by publishing clear information on their website about interest rates and payment schedules.”
The U.S. Home Equity Line of Credit Satisfaction Study, now in its second year, measures overall customer satisfaction with the HELOC process and explores the key variables that influence customer choice, satisfaction and loyalty based on six factors: offerings and terms; application/approval process; closing; interaction with the lender; billing and payment; and post-closing and usage.
New for this year, the study evaluates HELOC provider performance across two separate customer segments: new HELOC customers who have had their HELOC for two years or less and HELOC customers who have had their HELOC for more than two years. Awards are based on the responses of customers who have had their HELOC for more than two years.
The study is based on responses from more than 4,332 HELOC borrowers and was fielded from December 2018 through January 2019.
Regions Bank ranks highest in overall customer satisfaction with a score of 869, followed by Huntington National Bank (860) and BB&T (846).
For more information about the U.S. Home Equity Line of Credit Satisfaction Study, visit https://www.jdpower.com/business/resource/us-home-equity-line-credit-study.
J.D. Power is a global leader in consumer insights, advisory services and data and analytics. These capabilities enable J.D. Power to help its clients drive customer satisfaction, growth and profitability. Established in 1968, J.D. Power has offices serving North America, South America, Asia Pacific and Europe.
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 Scotsman Guide, “Equifax Economist: Don’t Expect a HELOC Boom,” June 21, 2018 https://www.scotsmanguide.com/News/2018/06/Equifax-economist--Don-t-expect-a-HELOC-boom/
 Housing Wire, “HELOC Volume Takes a Tumble,” December 26, 2018 https://www.housingwire.com/articles/47761-heloc-volume-takes-a-tumble