You’re right, £25K to the average UK mortgage (~£288k) is a big jump in terms of loan amount (although they seem to be increasing the size of the loans they offer quite quickly), but with their loans generating interest of up to 39% (I believe that’s their max APR on loans up to £10K, although they say the representative APR is 27.9%. I can’t remember exactly what the £10 to 25K APR is, but it’s up to 29%, roughly, I think (with the representative APR advertised at 14.8%)), the profit soon mounts up. Plus, as I said in an earlier reply, the security of a mortgage (as it’s secured against the house), and likelihood of you going to get every penny you’re owed is much higher, so you lose less profit than with loans due to having to write off defaults
Also, starting to offer mortgages doesn’t mean you have to immediately loan out £200 million pounds worth of mortgages in the first few days. You could start off small (like most of Monzo’s feature drops tend to do) and only approve a few at a time (generally the mortgage approvals process is sufficiently opaque that any customer that was rejected wouldn’t have clue that they were turned down because Monzo had already maxed out their lending quota for that week), and building it up slowly.
It also gives the bank a longer term, more secure income stream. A normal loan offers Monzo 5 years of their money generating income, but there’s the potential for that loan to be repaid and then just sits in Monzo’s account waiting to be loaned out to a new customer, and not making any money for Monzo during that waiting time. Whereas with a mortgage you’re guaranteed to have that money generating income for 25 years (or paid back early but for an extra fee).
I believe that mortgages are one of the most profitable areas at high street banks so it would be good for Monzo to get in on the act…when the time is right for them…and, hopefully, in the process, offer us a new mortgage lender that will approach it differently to the high street banks and deliver a better product for Monzo and its customers.
Anyway, I just thought I’d pose the question to the borrowing team as I’m currently shopping around for a new mortgage so it was on my mind.
No lol, I don’t work in the banking industry. Having said that, I do spend about I half my time trading on the UK and US stock markets. I’m not sure whether that makes me an amateur member of the industry, or maybe even semi-pro as I’m making money from it So, I guess there’s some experience/knowledge in there along with some personal opinion too…which is a fairly unhelpful answer lol.