Pressure on bank margins and the emergence of new technologies could force the mortgage market to “cut out the middle man” in coming years, warns the former CEO of a mortgage aggregator.
The rise of new online platforms has been well documented by The Adviser. So far these players have made little impact on third-party distribution. However, while many new online platforms are still in their infancy, former Loankit CEO and director of mortgage comparison website HelpCompare.com.au Simon Dehne says the third-party channel could look drastically different in a decade as block chain and peer-to-peer lending gain traction.
“In 10 years what impact will peer-to-peer lending and block chain have? [Block chain] is really an online ledger that becomes the trusted adviser. You marry those two emerging trends and you may have a disruptor that could take out the middle man — the broker, real estate agent and conveyancer,” Mr Dehne said. “Even a bank. We assume that banks will be here for ever.”
Australian banks have faced ongoing regulatory pressure in recent years. Additional capital requirements and record-low rates have squeezed their net interest margins, reducing the profitability of home loans.
NAB this week revealed that it was feeling the pressure of higher funding costs after posting a 3 per cent fall in cash earnings.
Last week Bendigo and Adelaide Bank managing director, Mike Hirst, said the RBA rate cut this month will have an impact on the profitability of its home lending:
“August price changes aim to deliver neutral margin outcome following recent cash rate reductions.”
As bank margins get squeezed and the RBA continues to reduce rates to drum up growth, Mr Dehne believes people will be forced to find other ways of generating returns.
“If you can cut the middle man out and reduce costs then people will cut out the middle man. That’s my fear for a mortgage broker,” he said.
The broking industry is currently being reviewed by the corporate watchdog in preparation for a report on remuneration to be handed to government by the end of the calendar year. Most industry figures agree that the commissions review will be a positive for the industry.
“Short term regulation can be a healthy thing because it provides credibility to the industry,” Mr Dehne said, adding that in the long-term, bank margins — rather than regulation — could be the real game-changer.
“Banks are constantly under pressure. I’d be more worried about what happens with commissions and if a new player from a different industry comes into the market and disrupts the mortgage industry.
“Look at Uber. What is stopping Apple or Google coming in and playing in this space and finding a platform that delivers our solution without too much grief for the client?”
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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