two decades as housing lending commitments jumped from A$13.2 billion in 1986 to A$235.6 billion in 2006.
“The Australian Mortgage Broker Survey 2007: Market Review” reports that although upcoming regulation as well as increasing competition from bank branches and falling commission levels threaten their position in the industry, mortgage brokers are mediating a larger share of residential lending commitments. Broker groups are expected to undergo further consolidation, as competition increases and as economies of scale become more important.
Authors of the report believe that lower margins on residential mortgages means that efficiency and scale becomes more important, and that smaller players will have a harder time staying competitive. However, consolidation and regulation will make the broker industry less volatile, and will stabilise the relationship between brokers and lenders. The report estimates that by 2010 half of new residential loans will be mediated by brokers.
In the 1990s, mortgage originators challenged the banks, building societies and credit unions that dominated the market, triggering intense competition to acquire customers. Since mortgage originators often had no proprietary distribution network, their success depended upon third-party distribution, fuelling the growth of mortgage brokers.
The report shows that the mortgage broker industry is expected to become more heavily regulated. Away from Federal authority, mortgage brokering currently falls under credit laws administered by the states and territories. However, there have been renewed calls for national legislation. In late 2006 the NSW Cabinet approved a number of measures that are expected to be legislated upon. Those include a licensing scheme for brokers.
Shrinking margins on residential mortgages have urged some lenders to reconsider broker channel distribution. Indeed, some of them offer exclusive deals through their branch channels, a system that allows them to undercut broker business.
44% of the brokers surveyed by the authors of the report, were concerned with increasing competition from bank branches, and many expressed dissatisfaction with perceived channel conflict and price wars. The prospect of decreasing commissions is seen as the greatest concern for mortgage brokers, with 84% of surveyed brokers admitting concern over this issue.
The report expects increased competition and a growing importance of economies of scale to force further broker groups’ consolidation. Upcoming regulation will create greater ongoing costs as brokers will be obliged to meet regulatory requirements when providing advice to their customers, thus contributing to consolidation.
As such, large broker groups will have significantly more power to negotiate for commission schemes with banks, so there will be advantages for brokers that join aggregators. For banks, large broker groups can represent a more profitable associate than brokers who only send through business occasionally.
“The Australian Mortgage Broker Survey 2007: Market Review,” is available from Report Buyer. For more information go to: http://www.reportbuyer.com/
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