Broker customers are largely drawn to the third-party channel to secure ‘the best deal’ but are most critical of the service they receive, new research from KPMG has found.
KPMG’s report, The Australian Home Loan Market – Winning the fight for customers, surveyed 622 “mass affluents” (people that earn between $70,000 and $250,000 a year) to “understand how customer preferences for home loans vary by demographics such as age, gender, and relationship status” and “what notable differences exist within these segments”.
According to the professional services company’s latest mortgage market survey, 48 per cent of respondents said they currently had a home loan, while 63 per cent of those who did not have one said they would be looking to secure a mortgage within the next two years.
The driving considerations for taking out a home loan were: competitive interest rates’ (99 per cent); ability to vary payments’ (83 per cent); competitive fees’ (81 per cent); and ‘ability of offset against savings’ (80 per cent).
The least ‘essential’ factors for mortgagors were building insurance (16 per cent), ‘ability to make payment holidays’ (22 per cent) and ‘ability to fix rate’ (31 per cent).
Broker customer experiences
Reflecting the broader market trend, the broker channel was responsible for the largest proportion of home loans taken out by respondents (44 per cent of the 475 people who had taken out a mortgage), while 41 per cent had secured their mortgage through an existing financial institution, and 15 per cent had done so through a new financial institution.
The survey found that the majority of those using a broker were between the ages of 30 and 49 (45 per cent) but that older mortgagors were more likely to obtain their home loan through their existing financial institution.
Notably, half of broker customers had chosen the third-party channel as they ‘wanted to find the best deal’.
After securing the best deal, the second most popular reason for choosing the broker channel was convenience (with 29 per cent saying that brokers had made the home loan process ‘easy’) followed by reputation (14 per cent).
Brokers also came out top for renegotiating customer rates — 67 per cent of respondents that use a broker change their mortgage rates at least once every five years, 16 per cent higher than those who originated their home loan through a lender’s proprietary channel.
According to KPMG, this increase in churn could be due to “heightened price sensitivity of applicants through the broker channel”.
Broker customers were also least likely to have never had their home loan renegotiated on rate, but, surprisingly, as many as a third of broker customers said they had never had their rate changed.
Brokers rated lowest for customer service
Despite brokers being responsible for the largest share of home loans, the respondents to the KPMG survey were most critical in their evaluation of the service they received.
While the majority of respondents consistently rated their experience as either ‘good’ or ‘average’, brokers scored lowest on all six ‘pillars’ of customer experience.
For empathy (‘achieving an understanding of the customer’s circumstances to drive deep rapport’), brokers were scored 3.5 out of 5 (compared to a high of 4 for those that went to a new financial institution for their mortgage).
For personalisation (‘using individualised attention to drive an emotional connection’), brokers were rated 3.5 out of 5 – while the proprietary channel (both existing and new to customer) were rated 3.8.
In terms of ‘being trustworthy and engendering trust’, those changing to a different financial institution were rated highest, giving a score of 4.2 – the highest rating of all categories in customer experience. In comparison, brokers were rated 3.8 (while existing financial institutions were given a 4).
When asked about ‘minimising customer effort and creating frictionless processes’, broker customers rated the channel the same as those who had gone through their existing bank (with a score of 3.7), while those who went to a new financial institution rated them with a 4.
Those going through lenders were given higher scores for ‘managing, meeting and exceeding customer expectations’ too, with broker customers giving the channel a rating of 3.6.
Lastly, brokers were given the lowest rating for resolution (‘turning a poor experience into a great one'), with a rate of 3.5.
Banks will spend $250m to improve customer service
Speaking of the findings, Geoff Rush, KPMG financial services partner, said: “The propensity of mass affluent customers to take out home loans with institutions other than their main bank, and the impact perceptions around integrity and simplicity have on decision making underscored the need for Australian banks to speed up their transformation programs to win the intensifying battle for home loan customers.
“Competition amongst Australian banks in home lending is particularly fierce at the moment. To maintain market share, banks are heavily discounting their front books, especially through broker channel. Interestingly, they are typically not matching these discounts through their own proprietary channels. The impact this is having on profitability is material with net margins as low as 25 bps on the front book of some of the smaller regional banks.”
He added: “To abate this race to the bottom in home loan profitability, Australian banks are increasingly trying to differentiate their value propositions on service, not just on price.”
Indeed, KPMG estimated that Australian financial institutions will spend over $250 million in each of the next two years to improve the home loan experience of customers.
Mr Rush continued: “To win the fight for customers, home loan providers must deliver a consistently great experience that is simple, efficient and stress free.”
The company highlighted that Australian financial institutions also need to develop “clearly defined strategies for optimising the value of broker partnerships and balance these plans with its proprietary channel strategies”.