Over the past 10 years Australia’s decreasing interest rate environment combined with an increasing number of lenders and mortgage products have helped mortgage brokers demonstrate their value. Wider choice, and superior advice and service has resulted in better consumer outcomes, and according to the latest CoreLogic data mortgage brokers now account for 53.6% of all new loans in Australia [1].
The fact that there are no direct costs involved when borrowers use a broker (commissions are paid by the banks, at no cost to borrowers) has also been a key factor behind the industry’s rapid growth and success.
But in 10 years from now, will brokers by replaced by technology? Is anyone going to design an Uber or Airbnb for mortgage broking? Will you be able to fill out a form on your iPhone, and then half an hour later have a one million dollar home loan debt? That is scary!!
‘Fintech’ is hot on everyone’s lips, but disrupting the residential mortgage market isn’t quite so simple. The regulatory framework is complex and the size of the funds being advanced means the risks borne by both the borrowers and lenders is high.
I’m personally sceptical about any of the ‘front end’ disruptors, and there are many. What I’m referring to here are groups allowing consumers to sort through the various lenders and product options themselves. These sites then help borrowers determine their borrowing capacity, then they help borrowers take on the mortgage debt, and the services come with limited or low grade property/finance advice at best.
There are so many problems here:
- Is it smart borrowing as much as the banks will lend you?
- Are borrowers with limited experience knowledgeable enough to understand which lenders are most suitable for them, and who has the most suitable credit policies?
- What is the borrower looking to achieve over the next 5/10/20 years, and is the transaction they’re undertaking properly aligned with these objectives?
- Have the issues around gearing, cash-flow management and risk mitigation been considered?
- Has there been a discussion around ownership structures, tax outcomes, estate planning and asset protection?
- Are there any specialists (tax specialists, property lawyers, buyers advocates) whom would also be helpful speaking to?
- Does the borrower know what’s happening around the country in so far all the major capital city and regional property markets are concerned?
- Does the borrower know what other options might be available, not just in terms of loan products and pricing, but in terms of loan structures and wealth strategies?
In my opinion the successful ‘disruptors’ in the mortgage industry will be those who can make the ‘back end’ processing of home loans more efficient. Already we’re seeing electronic document management, automated credit assessments, remote ID verification, eSignatures, paperless settlements and more. This is where the money is.
Right now, depending on the funder it can still take up to 5 weeks for a refinance to be lodged, approved and settled. There are many manual, time consuming and paper based parts throughout the process, and as these are upended they’re adding significant value to all stakeholders (borrowers/advisers/funders) in the process.
Robo advice and comparison websites will have a small place on the front end, but I think they’ll struggle to gain any sort of mainstream acceptance. Given the significance of buying properties and taking on hundreds of thousands if not millions in mortgage debt, most borrowers will still want a relationship with a trusted adviser, whom they can rely on to save time, to avoid mistakes, for other referrals, and to be guided through the process.
The fact that REA and Domain have both now moved into mortgage broking is a strong endorsement for the industry. I don’t believe it will be replaced by computers in 10 years.
Brokers who simply offer a product and interest rate (rather than in depth strategy/structuring advice) are most at risk though. The onus for brokers should be on improving their own knowledge and skills, so they can add more value from an advisory standpoint to their client relationships.
This is what I’m focussed on, raising the bar higher and looking at every angle to constantly deliver a superior borrowing experience.
I know I will still have a career in 10 years!
