By Effie Zahos
Money magazine, June edition
Mortgage brokers are keen to sell more than just home loans, says Effie Zahos
It’s survival of the fittest for mortgage brokers. But while there has been a drop in the number of brokers, consumer interest in dealing with them is at an all-time high. Ten years ago brokers wrote around 10% of new home loans. Today that figure is 42%.
Clearly consumers are seeing value in brokers, and while I have been critical of them in the past, I now agree that there is value is seeing a good broker – “good” being the operative word. For me it wasn’t a case of not knowing what loan I wanted but rather which lender’s polices would work in my favour.
According to the Mortgage Finance Association of Australia (MFAA), the No. 1 reason why most consumers see a broker is that they do all the legwork for you. As well they have a wide range of loans, are convenient and are experts in a range of mortgages from various lenders.
So if consumers trust brokers to find them the best home loan, would they trust them to meet all of their banking needs: online saver accounts, credit cards, transaction accounts and so on?
I would love a broker to do all the legwork for me when it comes to rolling over my term deposits. There is nothing more frustrating than chasing the best rate and having to fill in all the paperwork if you opt for another institution.
While it makes sense for brokers to be able to sell you something on the side, this “share of wallet” dilemma, according to National Mortgage Brokers managing director Gerald Foley, will be the next battleground for brokers and lenders.
“From the bank view, share of wallet is a client taking a loan and maybe one or two other products with the same lender,” says Foley. “The broker share-of-wallet view is you come and arrange your loan, maybe insurance and maybe something else on the side as well, but not necessarily all from the same lender.”
Will this happen? Unlikely – for two good reasons. First, there’s the rewards issue. Brokers need to be paid and while they don’t charge consumers for their service, they’re paid a commission from the lender they refer you to; banks will have to agree to some sort of remuneration if brokers are to sell other banking products.
An upfront payment of 0.5% on the loan amount, plus a trailing commission of 0.15%, is generally what’s paid to brokers.
It’s worth noting that Phil Naylor, the chief executive officer of the MFAA, believes it’s a fallacy to assume that if commissions disappeared the cost of home loans would fall. “There is no material difference in the cost to the banks of providing a loan through a branch or a broker,” he says. “When banks cut commissions by 30% during the GFC there was no reduction in interest rates.”
Naylor says the most significant impact on interest rates is the lack of competition in the lending market. “This will only change if there are more lenders in the market able to put pressure on the major players, as was the case prior to the GFC.”
The other reason why broker share of wallet may never eventuate is a licensing issue. As Belinda Williamson, of Mortgage Choice, says: “Mortgage brokers operate under an Australian Credit Licence which licenses brokers to assist customers with selecting a home loan or other personal lending. For mortgage brokers to do the same with a broader range of banking products it would require them to obtain an additional licence known as the Australian Financial Services Licence. This is a licence used by financial planners.”
Naylor is more optimistic about brokers selling a range of banking products. “Some of this is already occurring with insurance,” he says. “I believe this will gradually change and because of consumer attitudes they will change the proposition offered.”
Until then the best tip to give you here is to make sure you work with a good broker, ideally one who is MFAA-approved, and do your homework first. Mortgage brokers are still salespeople. You need to be in a position to question their choice of loan for you. And don’t be afraid to ask how they are paid and if they are paid the same commission rate regardless of the home loan or lender chosen.
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