Big four banks moving to out-deal mortgage brokers

THE four major banks are relying less on mortgage brokers to generate sales as they push borrowers into fixed-interest loans, and offer greater mortgage discounts through their own branch networks.

By InvestSMART · 15 Oct 2012

By InvestSMART ·
15 Oct 2012

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THE four major banks are relying less on mortgage brokers to generate sales as they push borrowers into fixed-interest loans, and offer greater mortgage discounts through their own branch networks.

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.

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

The Market Intelligence data shows major banks are substantially underweight on the mortgage-broker channel given they are behind 80 per cent of all mortgages sold in Australia.

For banks, mortgages sold through branches generally 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 four major banks, the MISC 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 in 2007.

The MISC 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 generally been more reluctant to match the mortgage discounting of their major 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 recent decision by 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 in the eastern states.

ANZ, the last of the big four to react to the Reserve's cash rate cut earlier this month, said on Friday it would cut its variable rate to 6.6 per cent. It blamed competition for deposits for the need to hold on to a 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 lowered 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…

Are the big four banks moving away from mortgage brokers in Australia?

Yes. Market Intelligence Strategy Centre data shows fewer than 60% of loans sold by mortgage brokers were financed by one of the big four in the June quarter (59.8%), down from 64% a year earlier — the biggest drop in their financing of the broker channel since September 2007. Major banks are relying less on brokers as they push borrowers into fixed-rate loans and offer greater mortgage discounts through their own branch networks.

How did the RBA cash rate cut affect variable mortgage rates at the major banks?

The Reserve Bank cut the cash rate by 25 basis points to 3.25%. Major banks trimmed variable mortgage rates by less than the full cut, generally reducing rates by around 18–20 basis points. Banks cited the need to protect margins amid competition for deposits.

Which banks cut their standard variable mortgage rates and by how much?

Following the RBA cut: ANZ cut its variable rate to 6.60% (about a 20bp cut), Commonwealth Bank and NAB reduced their standard rates by 20 basis points to 6.60% and 6.58% respectively, and Westpac lowered its rate by 18 basis points to 6.69%. Among second-tier lenders, 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 major banks offering bigger mortgage discounts through branches vs mortgage brokers?

According to the article, mortgages sold through branches tend to be more profitable for banks than those sold via brokers. Major lenders are therefore offering larger branch discounts, holding margins where they can, and in some cases scrapping cash refunds for broker-originated loans — all of which reduce their exposure to the broker channel.

Are regional lenders becoming more active with mortgage brokers?

Yes. The MISC figures show regional lenders such as Bank of Queensland and Bendigo and Adelaide Bank are increasingly active in selling loans through the broker channel. However, regional players have generally been more reluctant to match the majors’ mortgage discounting because of higher funding costs.

What does the drop in major lenders' share of broker-financed loans mean for borrowers using mortgage brokers?

For borrowers using mortgage brokers, it means brokers may be increasingly placing loans with a wider set of lenders, including regional banks and second-tier institutions. The shift was partly driven by bigger lenders scrapping cash refunds for broker-sold loans, reducing the major banks’ share of mortgages originated through brokers.

Have big banks scrapped cash refunds for loans sold through mortgage brokers?

Yes. The article notes that recent decisions by some bigger players to scrap cash refunds for loans sold via brokers helped spur the drop in the majors’ market share across the broker channel, particularly in the eastern states.

Do major banks still use mortgage brokers in all parts of Australia?

Major banks remain more reliant on mortgage brokers in regions where their branch networks are smaller. The article specifically says the big banks are increasingly relying on brokers in Western Australia and South Australia, even as they reduce broker-financed lending elsewhere.