Three years to live

I have just been given three years to live.

It came as a shock – you try to live a good life, you do the right thing.  Sure there is always a scare mongerer who will talk about what should be done differently, but life rewards flow justly, right?

Not always it seems.  Competition, small business:  Once again the easy target.

Home loan mortgage broking began life as a marketing model.  A method by which lenders without branches can market to the mass population and compete directly with the “name brands” and established branch networks. 

For lenders such as ING, Citibank, or ME Bank (three of many) having a cheaper interest rate and a better product is not enough.  Potential customers firstly need to know your loan product exists.  Then secondly need to have the confidence to use it.  Reading an advertisement does not suffice, a face-to-face discussion proved to be the ideal communication and education device. 

This new industry birthed in the 1980’s removed barriers to new lenders, increasing competition and leading to a direct decrease in interest rates paid by every Australian as mainstream lenders were forced to compete.

Over time the infant industry evolved.  Mortgage Brokers found that by increasing their own education and knowledge they could advise their clients on credit related issues over and above basic lender product queries, hence adding value to the transaction.

Concurrently more lenders recognised the advantage of using brokers as a distribution channel, and as the choice of lenders available through brokers grew, they began to be seen as a potential ‘one stop shop’.  In time the major banks joined their products to the broker offering.  The industry matured.

However with this growth came great responsibility.  The broker was no longer just a salesman, but a credit advisor.  Hence industry regulation.  In 2019 a broker needs a tertiary qualification, to operate under an ASIC licence subject to annual review, to have indemnity insurance, to be a member of an industry association, registered with the ombudsman, aligned with an aggregator, and undergo annual education and training requirements.

The industry has indeed evolved to such an extent that brokers are now seen as credit advice experts.  Bank branch staff, to whom none of the above listed minimum standard requirements apply, are experts in the knowledge of their own bank’s products but are not credit advisors.

59.1% of home loans are now lodged through the mortgage broker channel.  With surveys indicating a 96% satisfaction level amongst those clients, broker share continues to grow.

So it is that the industry has been shocked to have been the primary bullseye target of the Banking Royal Commission.  An enquiry into banking bad practice, highlighted by the fees-for-no-service scandal (including charging dead people) has now recommended to ban service-for-no-fees!

With every industry there will be dodgy players.  Tough rules and regulations to deal with those miscreants are essential.  We are fortunate in Australia that the significant regulatory environment placed on this industry has minimised such issues.  There is in fact no evidence of systemic problems specific to the broker channel.  Separation of powers between broker (giving credit advice) and lender (power to approve or decline a loan application) is in replication of government and legal best practice.

How the broker is paid (upfront and trail commission from the bank approving the loan) has the potential to be a problem if left unregulated.  However alternative payment methods have proven to be more problematic.  Current payments are fully disclosed, and the fact remains consumers have easy free choice to use or not use the broker channel as they see fit.  Continued growth of confidence in and use of the broker channel is evidence consumers do not have a problem with the existing model.

The Banking Royal Commission has recommended the current payment model be scrapped, to be replaced with consumers paying an upfront fee, the size of which is undetermined but could be from $2,000 to $5,000.

With the affordability crisis debate in full swing does anyone really think it is a good idea to add this to the cost of buying a home?  Other than the major banks of course, who had a major share price rally on the back of the thought of increased profits available following a wipe out of the broker industry.  Any thought banks would pass on potential reduced costs via lowering interest rates ignores history, in Australia and overseas. 

The Netherlands was held up as an example of a working ‘fee for service’ model.  Since that model was introduced in 2008 the total number of banks there have decreased from 99 to 44, the five largest banks now control 83.8% of the market, and net interest margins have increased.  That change has only benefited the major banks, unlike Australia where increased competition in the sector since brokers commenced operating has shown major benefit to consumers.

A majority of Australian homeowners will have had an association with a Mortgage Broker in the past, or expect to in the future, perhaps yourself, or your children.  At this time the industry has been given a 3-year life sentence.  That would directly decrease competition between banks, increasing interest rates, causing increased property costs, rent expenses and living costs.  

If you support competition in the banking channel, please add your voice to the call to our politicians to save the broker industry.  Messages of support for a continuation of the current (working) model are important if you wish to have the service available to you when you next buy a home or require a refinance.  There is a ‘save the broker industry’ petition you can sign at, or contact us for further information.

As an individual small business Integrity Finance Australia is but a very small and insignificant player in this industry.  It is the industry itself that matters, providing competition and choice in the market.  Having said that we take pride in the small part we play, genuinely changing lives for the better.  I thank current and prospective clients for your support and confirm death is not imminent, we will be here for at least another 3 years.  With your support perhaps much longer.


Integrity Finance Australia– Changing Lives

Daryl Borden Ph. 03 9511 8883 ACL 392184