I participated in a seminar last week and was asked to talk about what brokers do. There are a few misconceptions out there, here’s what I mean…
Here’s what my mum thinks we do!
(if only it were this glamorous!)
Here’s what my clients think we do…
(sitting back, and just counting the money, yeah I wish!)
And here’s what much of society thinks…
(thanks Royal Commission, and sensationalised news headlines!)
So let’s set the record straight.
First and foremost, brokers drive competition by offering borrowers more choices. Rather than just going into a CBA branch and getting a loan, maybe there are other lenders out there who have cheaper rates, or a more suitable credit policy. No two borrowers are the same, and particularly in the current market where lenders are changing their policies often, it’s not uncommon to find big differences in prices and borrowing capacities, if you take the time to shop around.
This leads to the second point – brokers save borrowers time, by doing all the leg work for them. If you’re unimpressed with CBA, or they can’t help you, then what do you do… spend another couple of hours explaining your situation to bankers at ANZ, Westpac and then NAB?
Then it’s still on you to collate all your documents, lodge an application, and then drive the application through to settlement (generally a 3-4 week process). Do you really have the time and skills to do this correctly? Good brokers are processing several hundred loan applications each year, so they know where to go and why. Then once an application gets lodged they know their way around the bank systems/processes, to make things happen faster. They also have the right internal contacts at the banks so any issues that arise can be rectified quickly.
Lastly, brokers tend to provide better service. Consider this… on average, 70% of new business for a broker comes via their existing clients (e.g. via positive word of mouth referrals). So with this in mind, if you were a mortgage broker running your own business, do you think you would be incentivised to look after your clients?
I’m not saying bank lenders won’t look after their clients too, but the incentives are different. If an in-house salaried banker let’s a client down, there will always be another client who walks in the door next week.
Brokers can also build longer-term relationships with their clients. If you get a loan at a CBA branch, will the banker who helped you be around next year, when you next need help? Often bankers move into different roles or switch banks, whereas if you’re dealing with a reputable broker they’re much more likely to be around when you next need them.
At Long Property we go a few steps further with specialist referrals, and more sophisticated strategy/structuring advice, but that’s beyond the scope of this article.
Clients have voted with their feet. As an industry, mortgage brokers now account for over 50% of all loans written, and the volume of loans written by brokers has doubled in the last 10 years. [1]
Last week Deloitte Economics published The Value of Mortgage Broking Report. You can read the full report here, I’ve also provided some highlights below:
- More than 50% of all home loans originate with mortgage brokers, a number that continues to grow.
- Over 90% of customers are happy with their mortgage broker and their services.
- Mortgage brokers drive competition and place competitive pressure on interest rates, so customers get a better deal.
- Mortgage brokers provide access to a diversity of lenders, leading to better consumer outcomes.
These same findings are further endorsed by the Mortgage & Finance Association of Australia (peak industry body) who conducted analysis during 2018 examining complaints and arrears. Again you can see the full findings of the report here, and the key takeaways are as follows:
- Complaints to the MFAA have reduced by 78% over the last 10 years.
- Brokers account for 91% of membership to the Credit & Investment Ombudsman (the main complaint service for credit activities) however complaints about brokers represent just 6.1% of all complaints to the CIO.
- ASIC data shows there is no significant difference in arrears between the broker channel and the proprietary (direct to bank) channel.
Still not convinced?
The majority of mortgage brokers don’t charge fees (we get paid commissions by the banks, at no cost to our clients). So there’s plenty of upside, and not much downside.
Like with any industry, there are unfortunately a few ‘bad eggs’ (e.g. irresponsible brokers) who tarnish our reputation. We’ve also been an easy target of late with respect to misconduct in the financial services industry (the banks have blamed brokers for many problems, in most cases the banks have been equally if not more at fault though).
Thankfully though we have a thriving industry delivering positive consumer outcomes. And this is why we continue to grow.
References
[1] Mortgage broking through a different lense, Mike Felton, CEO Mortgage & Finance Association of Australia – https://www.mfaa.com.au/news/mortgage-broking-through-a-different-lens-industryidefence
