Overview 1
Catalyst 1
Summary 1
Executive Summary 2
The broker channel has evolved into an integral part of the Australian mortgage market 2
Mortgage brokers offer a full range of products 2
Given the increased importance of mortgage brokers, lenders compete for their business 2
Regulation, channel conflict and commission cuts threaten mortgage brokers 2
Brokers are relatively unconcerned about upcoming regulation 2
Brokers regard competition from the direct channel as a major threat 3
Increased competition has led to downward pressure on commissions 3
There are opportunities for the mortgage broker channel to grow 4
Many mortgage brokers plan to expand into other products 4
Mortgage brokers must continue to leverage customers' desire for personal service 4
The broker channel is expected to consolidate 4
The broker channel is expected to originate half of all new residential loans in three years 5
Table of Contents 6
Table of figures 7
Table of tables 8
Market Context 9
The broker channel has evolved into an integral part of the Australian mortgage market 9
Mortgage brokers now originate around 40% of new residential loans in the Australian market 9
Major banks have come to rely increasingly on mortgage brokers 9
Smaller banks use mortgage brokers to an even larger extent than major banks 9
Mortgage brokers continue to be crucial to non-bank lenders 10
New participants have changed the composition of the mortgage broker market 10
There has been an influx of new younger entrants 10
Broker groups have come to dominate the mortgage broker market 10
Mortgage brokers now offer a full range of products 11
Mortgage brokers often provide non-standard mortgages 12
Most brokers focus on conventional mortgages 12
The average broker originated loan size is over A$300,000 dollars 12
Refinancing is still an important part of mortgage broker business 13
Brokers surveyed believe that refinancing will stay at similar levels next year 15
Given the increased importance of mortgage brokers, lenders compete for their business 16
CBA has gained the top spot as the most commonly used lender 16
Of the non-bank lenders, the most commonly used lender was RAMS 17
Issues Facing the Broker Channel 18
Expanded regulation of the mortgage broker industry now seems inevitable 18
ASIC commissioned a report recommending regulatory reform over four years ago 18
Recent increases in housing stress and repossessions have led to renewed calls for federal legislation 18
Brokers are confident that regulation will not affect their business 19
Brokers regard competition from the direct channel as a major threat 20
Brokers are worried lenders may look to pull away from broker distribution 20
Australian banks have strengthened their branch network 21
Increased competition has led to downward pressure on commissions 21
84% of brokers highlight decreasing commissions as a prime concern 21
24% of brokers expect commissions to decrease in the next 12 months 22
Brokers are unsure of what would constitute a reasonable one-off fee 22
Future Focus 23
Mortgage brokers do recognize the need to adapt to a dynamic mortgage market 23
Increasing product complexity will provide opportunities for mortgage brokers 23
47% of brokers envision expanding into other financial products besides mortgages 23
Mortgage brokers must continue to leverage customers' desire for personal service 24
The broker channel is expected to consolidate and grow 25
Further consolidation is expected in the industry as it matures 25
The broker channel is expected to originate half of all new residential loans in three years 26
APPENDIX 28
Supplementary data 28
Definitions 33
Bank 33
Broker 33
Clawback 33
Lending commitments 33
Low-documentation loan 33
Mortgage package 33
Non-bank lender 33
Non-conforming loan 33
Refinancing 33
Trail commission 33
Methodology 34
Further reading 34
Ask the analyst 34
Datamonitor consulting 34
Disclaimer 34
List of Tables
Table 1: Annual loan settlements in the financial year for major aggregator groups, 2006-7 28
Table 2: Average loan size mediated by mortgage brokers, 2006-07 28
Table 3: Refinancing lending commitments and proportion of total owner-occupier lending commitments, 1992-2006 29
Table 4: Refinancing proportion of mortgage brokers' business in the last year, 2006-07 29
Table 5: Expected change in refinancing in current year, 2006-07 30
Table 6: Brokers choice of main three lenders, 2006-07 30
Table 7: Business expectations of current year compared to last year, 2006-07 31
Table 8: Proportion of brokers concerned with issues, 2007 31
Table 9: Proportion of brokers considering expanding product line, 2007 32
Table 10: Forecasted residential mortgage lending commitments, 1992-2011 32
List of Figures
Figure 1: Only 17% of brokers are concerned about the prospect of increased regulatory scrutiny, 2007 3
Figure 2: PLAN and AFG have annual loan settlements in excess of A$20 billion each, 2006-7 11
Figure 3: The average loan size for brokers is over A$300,000, 2006-07 13
Figure 4: Refinancing has become more important over the last 10 years 14
Figure 5: Refinancing as a proportion of mortgage brokers' business has declined slightly but remains significant, 2006-07 15
Figure 6: Most brokers think that refinancing will stay at current levels, 2006-07 16
Figure 7: CBA has become the most commonly used lender by brokers, 2007 17
Figure 8: Only 17% of brokers are concerned about the prospect of increased regulatory scrutiny, 2007 19
Figure 9: Most brokers expect their business to improve this year compared to last, 2006-07 20
Figure 10: Many brokers are considering expanding into life insurance products, 2007 24
Figure 11: Residential mortgage lending commitments are forecasted to increase to A$316 billion by 2011 26