Yellow Brick Road turns up heat on banks

Mark Bouris is confident his Macquarie-backed Yellow Brick Road can double its monthly sales of new home loans within a year, creating a tipping point that will force one of the big banks to cut its mortgage rates.

After last year securing Macquarie to supply its white-label mortgages, the Yellow Brick Road network of brokers is making an aggressive push for customers by offering sizeable discounts on new loans.

About half the products it sells are provided by Macquarie Group - which has expanded its home loan book by more than half in the past six months.

Although the two companies' share of the $1.1 trillion mortgage market is tiny, Mr Bouris argued YBR, which he chairs, could grab a meaningful share of the flow of new home loans within a year.

Mr Bouris said that to force banks to change their mortgage pricing strategies, YBR needed to settle about $350 million worth of new loans a month - roughly 5 per cent of the value of loans sold through bank branches.

Helped by lower funding costs and an aggressive rollout of its branches, YBR would be able to hit this level within a year, he said.

"I'm confident we can double our volume in 12 months, which is what we did in the last 12 months," he said.

YBR, a mortgage broker in which Macquarie has an 8.32 per cent stake, earlier this year reported a doubling in its branch revenue in 2012.

Mr Bouris argued the volume increase would continue as a growing number of branches "matured" to a point where they wrote larger amounts of business.

If the company had a 5 to 10 per cent share of new loans being issued, Mr Bouris said, banks would be forced to try to lower prices, rather than protecting their profit margins, as they have done recently.

"Banks aren't going to take much notice of us unless we're in that 5 to 10 per cent range," he said. "If we can take market share from them, it becomes a volume game. They will have to fight back on volume, and to fight back on volume you have to fight back with pricing."

The comments come as banks try to use discounting on new loans to reignite growth in the home loan market, which is growing at its slowest annual pace on record.

ANZ and National Australia Bank have steadily increased their share of the lucrative home loan market in recent months, in contrast to declines among the two biggest players, Commonwealth Bank and Westpac.

Commonwealth Bank, which already writes one in four home loans, is tipped to further increase its sales of "white label" mortgages after last month receiving approval to buy up the broker Aussie Home Loans.

The partnership between Yellow Brick Road and Macquarie has been touted as an example of how smaller lenders may put more competitive heat on the big four lenders as funding costs recover.

Australian Competition and Consumer Commission chairman Rod Sims last month pointed to the partnership as a positive development for the sector that made him "a little bit optimistic" about the state of competition in banking.