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Big banks fight for share of direct lending market

Updated: Jun 9, 2020

Mortgage brokers are now receiving $2 billion per year in fees; mostly being contributed out of big four bank profits. Banks are 'over-it' and looking to woo customers directly!



The major banks’ share of Australian mortgages currently sits at 80%, which is significant, but well below the share they once enjoyed. Further, according to analysis by Morgan Stanley, non-banks are growing their loan ‘book’ seven times faster as borrowers and brokers chase lower rates and want quicker approval times. In fact, in recent months non-bank lenders wrote more than 40% of new loans.


The big four banks’ branch networks face an intense threat from brokers

“Major banks' share of mortgages sold through branches has fallen by one-third in the past four years.”

However, this is only half of the ‘bad news’ story for major banks. According to analysis by global investment bank UBS, the big four banks’ branch networks face an intense threat from the growing reach and popularity of mortgage brokers. Major banks' share of mortgages sold through branches has fallen by one-third in the past four years, and currently represents about 37 per cent of all mortgages, down from nearly half in 2013.


A 2018 Australian Securities and Investments Commission (ASIC) survey of consumers who took-out a loan in the previous 12 months reported that borrowers who used a mortgage broker typically did so expecting that the broker would be able to find them the ‘best’ loan - lowest interest rate, flexibility and low fees. Among consumers who went direct to a lender, the vast majority had an existing relationship with the institution. However, those who stayed with their existing lender consistently indicated that they were disappointed that their lender (typically a bank) did not offer any rewards for an existing relationship. If consumers wanted a lower interest rate on their home loan, they had to ask for it and this was often met with mixed results.


However, those who stayed with their existing lender... were (often) disappointed

“If consumers wanted a lower interest rate on their home loan, they had to ask for it and this was often met with mixed results.”

According to ASIC, Australian Mortgage brokers are now receiving $2 billion per year in fees; mostly being contributed out of big four bank profits. In an effort to avoid paying such exorbitant fees, the big four lenders are attempting to fight back by slashing fixed rates and boosting incentives ranging from credit card bonus points to cash incentives, lower fees and consumer goods. However, to date, the impact on share of big four bank direct lending, has been modest. Analyst Jonathan Mott warns the banks will need to consider whether their future is as underwriters rather than distributors.

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