Firstmac exits wholesale funding

“Traditionally we've been funding mortgage managers and the other non-bank lenders, just like we started as. And then we've worked with brokers, and now with a separate online retail brand to service a different sector of the market with loans.com.au,” Mr Cannon told The Adviser.

“We’ve made the decision to withdraw from wholesale lending, so we're no longer going to fund non-bank mortgage managers. By that, we mean we will no longer provide funding at a wholesale delivery rate to which mortgage managers add their margin and take it to a retail market.”

According to Mr Cannon, the market has become highly saturated, leaving a great deal of competition for little business benefit.

“That market is changing, because at one time, a lot of mortgage managers saw opportunity to come into the market between the lender and the broker. And because the market’s so evolved so far, there's not so much space for another person with another mouth to feed, who passes on an application to another lender.

"Especially in this day and age when margins are quite low and competition is fierce.

“I think the non-bank mortgage manager space has had its day, unless you're doing direct retail or have some other unique market proposition. Perhaps you're doing something specialised like sub-prime lending or you've got either a retail offering or a unique connection with somebody who is referring business to you. But just being in the space between the broker and the lender, there's too many mouths to feed.”

Mr Cannon said that Firstmac is committed to servicing the broker community via the aggregators while continuing to build its retail offering in online banking.

“In the late ‘90s, we identified a style of home loan customer who was dissatisfied with what the banks were offering and was looking for a self-service model. It’s a separate value proposition to what brokers offer and it meets the needs of a specific style of customer who, generally, are former direct bank customers. They want to apply online outside of regular business hours, and they don’t want to go into a branch,” he said.

“Broker customers will always look for that specific service model that a broker offers, and it is a market segment that is performing strongly. What is changing is the direct retail relationship customers have with banks, where they are no longer willing to physically go into a branch.”

[Related: Non-bank records surge in branded home loans]