Changing borrower behaviour

It would be hard to deny that the banking and financial services landscape in Australia is currently in a state of flux, with Hayne set to hand down the findings of the Royal  Commission into Banking and Financial Services in February and the deadline for Open Banking fast approaching. We can expect a number of changes in the industry in the coming months and years. We are also witnessing shifts in consumers’ behaviours and attitudes that have been, perhaps more quietly, impacting the market over the last five years or so. In the mortgage space there are two key trends disrupting the market:

1.    The increasing role and influence of brokers
2.    Shifts in the drivers of lender choice

The proportion of broker originated mortgages is now approaching 60%. RFi Group data also shows that the proportion of borrowers using the broker channel for research and enquiries has been increasing over time. As a result, the influence of brokers is also growing, with the proportion of borrowers who chose their most recent lender due to a broker recommendation almost doubling from 12% among borrowers who took out their loan prior to 2008 to 20% among borrowers who took out their loan in 2018.  In fact, for 3rd party originated borrowers, a broker recommendation is now the primary driver of lender choice. 

Furthermore, borrowers like and trust their broker, or at least they like and trust them more than their lender. According to RFi Group data, 52% of 3rd party originated borrowers trust their lender (compared to 58% for direct borrowers). The proportion of 3rd party originated borrowers who trust their broker is significantly higher at 62%. The results are similar for satisfaction and for NPS. As a result we are seeing the broker relationship become more important than the lender relationship, which means that a borrower who took out their loan via a broker is more likely to go back to their broker for a subsequent mortgage or if they want to refinance. There are ways that lenders can mitigate this, with the onboarding process and capturing the salary deposit especially important for acquisition of broker originated borrowers. For a 3rd party originated borrower it is their broker who has walked them through the process of applying for their loan and helped them to realise their property ownership dreams. Lenders must win over the customer relationship from a customer’s broker. 

The other key trend we’re seeing is the decreasing importance of the main bank (MFI) relationship in driving lender choice. Meanwhile, the proportion of borrowers choosing their lender based on price or speed of application has increased significantly. This trend isn’t unique to mortgages, with the proportion of consumers who chose their provider because the provider was already their main bank also decreasing for deposit products, cards and personal loans. 

The combination of the decreasing importance of the MFI relationship and increase in broker usage suggests greater potential for disruption in mortgages in the future. These trends point to a market ripe for disruption, and disruption is on the horizon in the form of the Royal Commission, Open Banking and increasing number of neo-banks gaining full banking licenses. It will be critical to continue watching these trends and how customer demands change as a result.

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