Finsure Group CEO Simon Bednar (pictured above) has raised concerns that banks’ efforts to regain a share of the home lending market could undermine the mortgage broking community and disadvantage customers.
Banks are responding to a squeeze on profit margins by offering more competitive interest rates to customers looking to refinance, aiming to undercut brokers who currently handle more than two-thirds of new residential home loans.
“The margin squeeze banks are experiencing can partially be attributed to their insatiable appetite for cashback offers which was irresponsible and a fundamentally loose lending mechanism which only eroded economic value,” Bednar said.
He warned that a tighter lending market might lead banks to lower capital channel costs, resulting in reduced loan applications through brokers.
“The hard truth of the matter is if nothing is done, brokers will be adversely affected with customers bearing the burden of limited choice as banks push back into proprietary channels,” Bednar said.
The Finsure leader stressed the importance of the mortgage broking sector.
“Without the growth of the mortgage broking sector over the past three decades, consumers would have been left to the mercy of the major banks,” Bednar said.
He noted that brokers provide consumers with unparalleled choice, and undermining brokers is not in the best interests of consumers.
Major banks such as NAB and Commonwealth Bank have signaled a strategic shift away from broker volumes in favour of direct lending due to the cost of paying upfront and trail commissions to brokers.
“Reduced applications circulating within the broker market will mean rationalisation of the broking sector,” Bednar said.
He also highlighted the potential threat to broker commissions as banks look to claw back margins, a situation observed in New Zealand and Canada.
Bednar suggested that if banks proceed with these changes, the mortgage broking industry might have to consider a fee-for-service model to maintain revenue.
He also mentioned that economists predict the Reserve Bank could lower official interest rates in late 2024 or early 2025, which could improve conditions for banks but might not fully benefit consumers if banks withhold rate cuts to claw back margins.
Highlighting contrasting strategies within the industry, Bednar mentioned that while NAB CEO Andrew Irvine has expressed concern about growing mortgage broker costs, Commonwealth Bank appears to have a different approach.
Whatever stance is taken by major banks, Bednar is urging the industry to brace for these changes and “be ready to take action on behalf of brokers.”
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