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Collins Home Loans Blog

No mortgage brokers...no competition

Posted by Rob Emmett on Jul 22, 2018 1:14:00 PM

Competition (1)

New research released from the Mortgage & Finance Association of Australia (MFAA), in response to the Banking Royal Commission, reveals that without a comprehensive broker network, competition in the mortgage sector would be greatly reduced.

As a mortgage broker and mortgage originator who has been in the industry for over 23 years, I am please to see the MFAA CEO, Mike Felton return fire to support the mortgage broking industry at such a crucial time. Let's have a closer look at some of the key points the MFAA has made in response to the slanderous conduct of the big banks.

Banks using diversion tactics

In a recent letter to members, Felton highlights the strong possibility that the big banks are using diversion tactics to attempt to stifle competition and marginalise the broker sector and in doing so, create distrust amongst the broader community.

You only have to look at the residential mortgage industry in the early 1990's where the big four banks had the monopoly, to see how mortgage brokers have improved competition and reduced the net-interest margins of the banks. Recent revelations from the Banking Royal Commission highlight the continuing lack of competition practices by the banks, with the ACCC calling out the big four banks for not rewarding existing customers for their loyalty - by offering discounts to new customers but not existing ones. The ACCC’s report identified that existing banking residential mortgage borrowers paid significantly higher interest rates than new borrowers at the same bank.

Mortgage brokers drive competition

Mortgage brokers are single-handedly responsible for competition in the lending market and a broader product choice for customers. With over 55% of all residential loans sourced via mortgage brokers, Australian borrowers have demonstrated time again their support and comfort with the mortgage broker services. And of this 55%, 28% of all loans are directed to non-bank lenders, which in turn drives competition and improves customer choice even further.

Any changes to diminish the value proposition of the mortgage broker network would ultimately end up handing power back in the hands of banks, which would reduce competition and not serve the needs of the broader community. The mortgage sector could very quickly revert back to pricing strategies of the 1990s, where the big four banks' will be more intent in maintaining current positions than providing genuine competitive products and rate choices to customers.

Topics: mortgage broker, banking royal commission