Data and Audience
Now is the time to plan for the massive home equity line of credit market share demand later this year.
In the current market, home prices have steadily risen. This means there are more equity-rich homeowners and more home equity lines of credit (HELOC) — which Bank of America defines as “ a line of credit secured by your home that gives you a revolving credit line to use for large expenses or to consolidate higher-interest rate debt on other loans such as credit cards” — are available. Homeowners across the country with mortgages (this totals roughly 63 percent of all properties) have seen their equity increase by a total of over $3.2 trillion since the end of 2020 — a rise of 29.3 percent year-over-year. TransUnion estimates that the median home equity available per consumer reached $123,747 in the third quarter of 2021 alone. With the Fed increasing rates several times throughout this year, the market demand for HELOCs will increase due to consumers’ growing credit needs and not wanting to refinance their current mortgage at a higher rate.
A new mortgage rate survey from Housing Wire indicated that 30-year fixed-rate mortgages have increased to 5.30 percent. “Higher rates are seen as bad news for many parts of the mortgage market, said Maria Volkova and Georgia Kromrei of HousingWire. “But two categories are not as susceptible to higher interest rates: cash-out refis and home equity lines of credit.” The expected increase in interest rates translates into consistent margins for banks and credit unions. Because of this, equity credit is one of the more secure, profitable products that a bank or credit union can offer its customers.
It’s use-it-or-lose-it time for mid-tier, local, or regional lenders to take advantage and capitalize on the marketing opportunity to sell equity credit products to customers and prospects during this rising market. But it’s easier said than done.
The HELOC Market Is at an Inflection Point
Research found that about three-quarters of HELOC borrowers typically open their credit lines with their primary mortgage lender or their primary financial services provider. But customer willingness to go to a branch to obtain home equity credit is dwindling.
The COVID-19 pandemic has forced digital adaptation across various industries and practices — banking consumers are no different. When current HELOC holders were asked about the channels they used to obtain information about equity credit, branches remained the top channel for communication. But digital channels via mobile or desktop unsurprisingly increased in importance when compared to 2020.
Financial institutions may assume they can advertise as they have been and direct potential customers to a branch location. This won’t work any longer. The younger the consumer, the more likely they took either the mobile or online route or some combination of both to apply for HELOCs. If that’s the case, a different marketing plan is needed for digitally savvy and active-credit-user audiences.
Here are a few tips that banks and credit unions can use.
Key HELOC Marketing Strategies
1. Capitalize on Multi-Sourced Credit and Mortgage Data
Banks and credit unions need to leverage the correct data to maximize personalizationiPersonalization is when communication is tailored to an individual based on information a company has learned about that person through collected data and internet habits. Maybe a potential customer lives in the Arizona desert and loves long-distance running. A personalized marketing approach would be to use that data to send that consumer information about running in the ... Read More and targeting. The right mix of data isolates not just a wide range of consumers but responsive consumers who have both the need for equity credit and the capacity to qualify based upon the financial institution’s current underwriting standards. If banks and credit unions offer credit products to a customer, there needs to be minimal potential that the customer gets turned down. This can only be accomplished by using credit bureau and homeowner mortgage data.
Multi-source data can uncover relationships between credit data sources and integrate blended information, such as mortgages and demographics. This cannot be achieved from a single data source and allows financial institutions to maximize response and, ultimately, HELOC conversions.
A different marketing plan is needed for digitally savvy and active-credit-user audiences.
2. Establish Segmentation
Marketers can optimize responses by identifying unique credit segments via the multi-sourced databases to personalize contact strategies, credit offers, proactive communications, and more. Banks and credit unions can also use targeting models to focus email, direct mail, telemarketing, and addressable display advertising efforts on the most responsive segment of their customer base or specific prospects.
Three key equity credit segments provide the best potential:
- Households that have an equity line with a competitor — These households tend to be harder to convert, but with the right offer and credit limit, can be a profitable segment to solicit.
- Households with active credit card and/or installment loan debt — Leveraging credit bureau database, banks and credit unions can isolate these households and illustrate lower monthly payments if they consolidated their debt into a HELOC.
- Households that have recently refinanced their loan or become new homeowners — After moving into a new home or refinancing a mortgage, there is a tendency for the consumer to spend on home improvements and other household needs.
3. Build a Compelling Creative Strategy
Customers can quickly disengage due to an unpleasant or disconnected experience in the current environment where every customer relationship counts. Banks and credit unions need to construct a marketing mixiA company's marketing mix refers to the multiple channels, vehicles and venues it will use to distribute its marketing message to drive sales. For example, a company probably wouldn't only put its message on a billboard along the interstate. A good marketing mix might include a billboard, but also some digital advertising, maybe an in-person event, a public relations strat... Read More that is relevant and highly personalized to the customers’ or prospects’ particular situation.
Tailoring and personalizing design and copy of marketing materials to the prospects’ expected needs means:
- Testing different themes and leveraging the value prop of the existing brand.
- Use tables and graphics to illustrate consumer-friendly tax savings and monthly payment savings.
- Communicate and reinforce offers through preferred channels such as direct mail, paid social, email marketingiEmail marketing means using email as a vehicle to promote a product or service to a prospective customer, creating a very important two-way communication channel. If used properly, it can be an effective way to develop relationships with potential customers while keeping them informed via newsletters or company announcements. Many companies use email marketing as a way to... Read More, connected TB (CTV), and direct display ads.
- Facilitate the consumers’ desire to research and gather more about HELOCs by linking landing sites and web pages with relevant tools, calculators, current rate tables, online applications, or “find a branch location” functionality.
The current equity market means banks and credit unions cannot just take last year’s plan and update minor details. The market has rapidly changed, and banks and credit unions need to be ready to plan for the massive HELOC market share inflection point on the horizon.