There has been a rush of headlines over recent weeks about banks being ‘at war’ with mortgage brokers. These headlines are misguided.
They also ignore the most important player in this ‘war’: Australian borrowers.
However, if some of the larger lenders are seeking to disrupt mortgage brokers and steer borrowers back into their branches, then they’re actually declaring war on home loan borrowers, for the benefit of their shareholders.
The mortgage broking industry is not in competition with banks. Banks are in competition with each other.
The major lenders have been losing share to agile, nimble, low-cost, customer-focused lenders for a decade now. Why would anyone think increased competition driven by a broker network – leading to lower prices for consumers – is a bad thing?
To be clear, I believe that our robust financial system that consistently rides the waves of recessions – and once-in-a-generation events – needs stable, well run major lending institutions.
But now, in my role representing Australia’s mortgage brokers, I’m seeing these attempts to shift blame during quarterly earnings announcements onto the broking industry in a completely different light: a thinly-veiled push to drive higher margins at the expense of Australian borrowers.
Suggestions that mortgage brokers are “eating the banks’ lunch” and that “banks need to wage war on mortgage brokers”, are way off the mark.
The major lenders’ market share is not being ‘taken’ by the mortgage broking industry. It is being taken by more than 100 other lenders in the market, many of whom are accessed only via brokers, not branches. It’s a good thing too, because if you live in a regional area, your choice of bank branches to borrow from is likely one, or none.
Positioning banks as competing with brokers is like saying Hilton hotels is competing with travel agents, instead of Hyatt and Sofitel. It completely misrepresents how the mortgage broking industry works.
Brokers are not at war with banks. We act as distributors of their products.
And when a bank acquires a new customer via a broker without having to do anything, they pay a commission. That bank doesn’t pay rent, overheads, bank lenders’ salaries, super – the list goes on. Are they suggesting that borrowers should pay banks to become their customers by paying the broker commission?
The recent reporting is right in linking brokers to competition. But rather than being in competition, we drive competition. Mortgage brokers have helped create a more competitive market where it is cheaper for all Australians to access credit.
We have a responsibility and a legal duty to find the most appropriate deal for borrowers under the Best Interest Duty, which has been in place for some years now. We provide choice, value and guidance to millions of Australian borrowers, and access to more than 100 lenders, who all have to compete in a market – not a monopoly – for borrower’s business.
So, what happens in practice is that brokers represent borrowers by driving competition and helping them access finance, and the major lenders represent their shareholders in seeking strong margins. Combined net profits of more than $30 billion last year for the Big Four suggests they’re doing just fine.
Competition is here to stay, it’s being driven by mortgage brokers, and that is a good thing for Australian borrowers who are paying less interest on every loan because of the rise of the broking channel. While 72 per cent of loans are originated by a broker, the other 28 per cent benefit from the competition driven by brokers as the industry drives lower prices on all mortgages.
The big end of town’s market share might be shrinking, but that’s not our problem. Brokers are focused on the interests of their customers, and it is up to lenders to put their best foot forward to outstrip their actual competition – other banks.
And that might just mean focusing on their customers: Australian borrowers.
Reference: This story was written by Anja Pannek, MFAA CEO and published in the Australian Financial Review on 29 May 2024.
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