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Innovation is what’s holding back non-majors from creating a viable fifth pillar in the mortgage market, says The Australian Financial Review’s Andrew Cornell – but one independent bank’s head of broker distribution says smaller lenders are as creative as ever.
In an article published earlier this week entitled ‘Mortgage market showdown’, Cornell says the Australian mortgage market is in for its ‘biggest shake-up since the emergence of the independent mortgage originators in the mid-’90s’ and calls the concept of a fifth pillar in Australian banking a ‘fable’.
“The reality is that since the non-bank share of the now $1.3 trillion mortgage market peaked at around 15% when Aussie, RAMS and Wizard were at their sharpest, it has since dropped back to less than 5%.”
Cornell admits the GFC accelerated the trend, as borrowers turned towards the greater perceived security of the major banking system, but says non-banks themselves contributed to their own demise, ‘pincered between sharper pricing by banks and existential crisis when funding was cut off in 2008’.
He says the big banks have access to funding at a cheaper rate than independent and non-banks and have ‘streamlined the cost of their physical networks’, which means new competitors don’t have a big price space to work with.
But ING’s head of broker distribution, Mark Woolnough, says non-majors are continually looking for ways to improve and says one benefit of being smaller is that it’s possible to turn around change quickly – which is great when rolling out new initiatives.
“In 2012, we improved loan processing, gave access to credit assessors and introduced a converged third party service model, among several other initiatives. So, although this may not be seen as ‘innovation’, it has result in a better experience for our third parties and ultimately the customer.”
Not surprisingly, like Cornell, Woolnough believes Australia would greatly benefit from stronger competition in the banking sector – but unlike Cornell, who thinks a lack of fresh ideas is keeping a potential fifth pillar from rising out of the ashes, Woolnough believes education is crucial.
“The key to evening out this market share is to ensure Australians are aware of the breadth of competitive products and lenders out there – and that’s where brokers play a vital part in educating the consumer about all the competitive options from all lenders.”
Yet, Cornell says consumers do appear to realise that many of these sub brands are in fact owned by majors. He cites research – admittedly, from Westpac – which shows they do but generally don’t think about it – saying is good service they’re really after.
But shouldn’t this be the area in which the smaller lenders stand out?
Woolnough say ING has ‘one of the highest home loan customer satisfaction rates’ of any other third party bank.
“…and we ensure this is always a priority. Our size means we can adapt to give our third party partners first grade service; we are therefore creating a positive experience for the end customer.”
Yet, there’s one other thing Cornell and Woolnough can agree on: mortgage brokers are a vital link between clients and lenders and remain the most influential source of information when it comes to borrowers settling on a loan. In its mortgage report, banking research company RFi says mortgage application behaviour has noticeably changed in recent years.
“Traditional channels such as branches and brokers are also seeing changes in use. In the past year, broker use has grown while branch use has declined, with 46% of those who took out a mortgage in the past year having applied through a broker and just 27% having used a branch.”
