‘Love-hate relationship’: Why big banks are stepping back from brokers

The vast majority of Australian home loan holders turn to the services of mortgage brokers, but the nation's largest lenders may be taking a step back from the service providers and towards digital-only mortgage channels. 

The big four banks appear to be accelerating their push toward direct-to-consumer lending.

Moving away from what S&P Global Ratings calls a "love-hate relationship" with brokers has the potential to benefit borrowers, according to the ratings agency’s latest report.

Shift from brokers could benefit home loan borrowers: Report

"Less mortgage origination through brokers, all else equal, means better returns for banks and potentially better pricing for borrowers," S&P Global Ratings credit analyst Simon Geldenhuys said.

"Banks are heavily investing in their proprietary [direct-to-lender] channels to regain ground from brokers."

Such investments include new digital home loan lender Unloan – a division of CommBank – and the banking major's recently-launched Digi Home Loan.

Westpac and ANZ have also joined the action, respectively launching an Online Refinancing Offer and the ANZ Plus platform, complete with home loan.

At the time of writing, the Digi Home Loan offers CommBank's lowest variable rate, at 5.59% p.a. (5.72% p.a. comparison rate*) while Unloan promises a variable rate of 5.49% p.a. (5.40% p.a. comparison rate*).

That's compared to 5.84% p.a. (6.09% p.a. comparison rate*) – CommBank's lowest variable rate advertised outside of its digital channels.

Mr Geldenhuys notes a new generation of borrowers more willing to embrace digital mortgage solutions could represent a boon for banks (and perhaps a hit for brokers).

"By digitising the mortgage process and offering greater price transparency, banks might dilute the mortgage broker value proposition," he said.

And there’s a clear financial incentive – mortgage brokers dig into banks’ profit margins.

According to S&P Global, banks typically pay a broker 0.65% of a home loan's value upfront plus trailing commissions of around 0.15% per year.

This can sometimes wipe as much as 40 basis points from a bank's profit margin on a broker originated home loan compared to a direct-to-bank mortgage.

CommBank recently reported that its broker-originated loans – making up around two-thirds of its mortgage book – are 20% to 30% less profitable than those written via its direct channel.

Brokers dominate Australian mortgage market

Still, it’s likely to be a while before mortgage brokers aren't Australians' go-to for home loans.

The latest reports from the big four suggest between 60% and 70% of their outstanding loan books were broker originated.

That figure may have increased in recent times, with mortgage brokers behind a record 76.8% of new residential home loans in the March quarter – around $99 billion worth, as per Cotality data commissioned by the Mortgage and Finance Association of Australia (MFAA).

"These results clearly demonstrate that the broker proposition is highly and increasingly valued by Australian borrowers," MFAA CEO Anja Pannek said.

"Mortgage brokers are key to ensuring a competitive mortgage market, where consumers have access to choice and consumer protections, including the unrivalled mortgage broker best interests duty."

Borrowers may also prefer brokers over banks due to increased transparency.

Banks and lenders often offer discounts on advertised interest rates in a bid to secure a borrower's business.

But without a broker, many Australians won't know what's really on the table for them.

While growing digital channels might offer some reprieve from secrecy, any change is likely to be gradual.

---

Advertisement

Important Information and Comparison Rate Warning

_{Image by Maria Ziegler on Unsplash}