Will brokers start shifting the balance of power in the mortgage market?

In a heavily oligopolistic mortgage market where the big four banks dominate, brokers may be the force that could drive the market to become more competitive. 

This coupled with sustained innovation from challenger banks and non-banks leads one to believe that a shift in the balance of power may be nearing. 

Understanding how the channel dynamics in the mortgage market are evolving will bring more clarity to this notion. 

Over the last couple of years, the influence brokers are having on the market has grown exponentially, in fact they now account for more than half of all home loan origination. 

Which begs one to deduce that they are providing value to customers that other parties may be incapable of providing.


RFi group’s mortgage research sheds light on this, revealing that the biggest reasons why mortgage holders who applied through a broker were drawn to applying through them is because they provided convenience, guidance in the application process and access to better rates. 

They also effectively give consumers more choice as those who enquire through brokers end up considering more lender when taking out a mortgage in comparison to those who don’t use brokers for enquiry. In doing so, brokers are playing a role in advocating smaller lenders that consumers may have been unaware of had they not gotten in touch with a broker. 

This is especially true for those who have no previous experience with buying a property, namely First Home Buyers (FHBs). 

Brokers are undeniable having a major impact on who FHBs are taking out home loans with as over time a decreasing proportion of FHBs are taking out home loans with the Big 4 banks, particularly those who applied through a broker. 

Source: RFi Group 

This is further highlighted, as recommendations from brokers have grown to become one of the main reasons why FHBs select a home loan provider. 

Source: RFi Group 

It is also interesting to note that over this period the proportion of FHBs who hold their mortgage with their Main Financial Institution (MFI) has also decreased. 

Which is a promising sign for smaller Non-Big 4 players as it suggests that mortgage holders especially FHBs are becoming more open to holding their most valuable financial relationship with lenders that are not their MFI.  

Brokers have clearly been the catalyst for this change in the market and considering the recent stimulatory stance that the RBA has taken by cutting the interest rates which is bound to encourage more FHBs to enter the market, it is entirely plausible that brokers will continue to play this role in the market. 

To add to this, the growing innovation in the market sphere headed by challenger banks and the regulatory support they continue to receive is only going to make the playing field more fiercely competitive. 

Early signs of this are already starting to come forward as just this week Xinja a neo bank received a full banking license which now gives them the ability to offer credit-based products.

Nitish Bhatt is a research analyst with RFi Group.

 

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