Banks make more use of branch networks over mortgage brokers

THE four major banks are relying less on mortgage brokers to generate sales as the big lenders have been pushing borrowers into fixed-interest loans as well as offering greater mortgage discounts through their own branch network.

By InvestSMART · 15 Oct 2012

By InvestSMART ·
15 Oct 2012

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The figures come as ANZ on Friday followed its rivals in holding back some of the Reserve Bank's official rate cut, cutting variable mortgage rates by 20 basis points.

The Reserve Bank cut the cash rate by 25 basis points this month to 3.25 per cent, amid signs of a slowdown in the domestic economy and weakening jobs growth.

According to the latest quarterly figures compiled by the Market Intelligence Strategy Centre, fewer than 60 per cent of loans sold by mortgage brokers are financed by one of the big four banks.

This shows banks are substantially underweight on the mortgage-broker channel given they are behind 80 per cent of all mortgages sold in Australia. For banks, generally mortgages sold through branches are more profitable than those sold through mortgage brokers.

Of the mortgages sold by brokers in the June quarter, 59.8 per cent were financed by one of the big banks, the strategy centre figures show. This was down from 64 per cent in the same period a year ago.

This represents the biggest drop in the majors' financing of the mortgage broker channel since the September quarter 2007.

The figures also reflect regional lenders such as Bank of Queensland and Bendigo and Adelaide Bank becoming more active in selling loans through the broker channel. Regional players have been more reluctant to match the mortgage discounting of their big rivals given their higher funding costs.

In particular, the drop in market share by the major lenders particularly across the eastern states was spurred on by a decision among bigger players to scrap cash refunds for loans sold through the channel.

Even so, major banks are increasingly relying on mortgage brokers in Western Australia and South Australia where their branch footprint is not as big as the eastern states.

ANZ said it would cut its variable rate to 6.6 per cent, effective this Friday, blaming competition for deposits for the need to hold on to margin.

Commonwealth Bank and National Australia Bank reduced their standard mortgage rates by 20 basis points to 6.6 per cent and 6.58 per cent, respectively. Westpac cut its rate by 18 basis points to 6.69 per cent.

Among the second-tier banks, Bank of Queensland cut its standard variable rate by 20 basis points to 6.71 per cent, while the Newcastle-based Greater Building Society lowered its rate by 15 basis points to 6.25 per cent.

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Frequently Asked Questions about this Article…

Why are the big four banks relying more on branch networks instead of mortgage brokers?

The article says the big four are pushing borrowers into fixed-interest loans and offering larger mortgage discounts through their own branch networks. Mortgages sold through branches tend to be more profitable for banks than those sold via mortgage brokers, so major lenders are directing more business to their branches.

How much has the big four’s share of broker‑financed loans fallen recently?

According to the Market Intelligence Strategy Centre figures, 59.8% of mortgages sold by brokers in the June quarter were financed by one of the big four, down from 64% a year earlier — the biggest drop in their financing of the broker channel since the September quarter 2007.

Are major banks still using mortgage brokers at all?

Yes. The majors are still using mortgage brokers in parts of the country where their branch footprint is smaller, notably in Western Australia and South Australia, even as they rely more on branches in the eastern states.

How did banks respond to the Reserve Bank’s recent 25 basis point cash rate cut?

The Reserve Bank cut the cash rate by 25 basis points to 3.25%. Major lenders held back some of that cut: ANZ cut its variable rate to 6.6%, Commonwealth Bank and NAB reduced standard mortgage rates by 20 basis points to 6.6% and 6.58% respectively, and Westpac cut by 18 basis points to 6.69%. Among second‑tier banks, Bank of Queensland cut its standard variable rate by 20 basis points to 6.71% and Greater Building Society lowered its rate by 15 basis points to 6.25%.

Why are regional lenders becoming more active in the mortgage broker channel?

Regional lenders such as Bank of Queensland and Bendigo and Adelaide Bank have become more active through brokers because they have been less willing to match the mortgage discounting of the big rivals — largely due to their higher funding costs — so they use brokers to reach borrowers they can competitively serve.

Did scrapping cash refunds for broker‑sold loans affect market share?

Yes. The article links the majors’ drop in market share across the eastern states to decisions by bigger banks to scrap cash refunds for loans sold through the broker channel, which reduced those banks’ presence among broker‑originated loans.

What share of all Australian mortgages do the major banks hold overall?

The article notes the big four are behind about 80% of all mortgages sold in Australia, even though fewer than 60% of broker‑sold loans are now financed by the majors.

How do deposit competition and funding costs influence mortgage pricing and broker use?

Banks cited competition for deposits as a reason to hold on to margins — for example ANZ said deposit competition influenced its decision when setting rates. At the same time, higher funding costs for regional lenders limit their ability to offer deep mortgage discounts, shaping whether they compete through branches or rely more on brokers.