Brokers brace for commission cuts
Two decades of booming growth in the mortgage industry is just a preview for the future, according to new industry research. But with this growth will come further consolidation and a bumpy ride for plenty of Australian mortgage brokers, according to the forecast.
Bumpy, that is, unless the broker belongs to a large broker group. In that case, they will likely survive heavy hits — growing competition from bank branches, commission cuts and regulation — all of which are expected to fry smaller fish.
The report, which was conducted by independent market analyst Datamonitor, surveyed mortgage brokers to determine how the mortgage broker channel may evolve.
It revealed that increasing consolidation of mortgage brokers may be a sign that the industry is maturing, which will positively impact public perception of brokers and fuel growth of the mortgage broker channel.
Industry is likely to become less volatile as the relationship between brokers and lenders stabilises. And despite threats to their position in industry, mortgage brokers are mediating a larger share of residential lending commitments, which is likely to equate to half the number of new residential loans being mediated by brokers within three years.
And while this is good news for larger broker groups, which will have significantly more power to negotiate for commission schemes with banks, smaller players are not expected to enjoy similar growth. Instead, the research indicated that smaller players may struggle to stay competitive because lower margins on residential mortgages mean that efficiency and scale becomes more important.
Shrinking margins have urged some lenders to reconsider broker channel distribution, with some offering exclusive deals through their branch channels, allowing them to undercut broker business.
Of those brokers surveyed, 44 per cent showed concerns with increasing competition from bank branches, and many expressed dissatisfaction with perceived channel conflict and price wars. But by far the biggest concern among those surveyed was the prospect of decreasing commission, a concern that was raised by 84 per cent of respondents.
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