‘Every single mortgage holder’ would suffer without brokers: AFG

Mr Bailey noted that the presence of the broker channel is “one of the few drivers of competitive tension” in the Australian lending market, evidenced by a continued increase in demand for the industry’s services.

“Let’s face it… if Australians did not appreciate the choice, convenience and ultimate outcome of working with a mortgage broker, they would not use the channel.

“It seems to me that if you want to talk about conflicts and significant changes to the remuneration model for mortgage brokers, you also need to ask the following question: ‘Who stands to benefit the most?’ It’s not the non-major lender, and it’s certainly not the customer,” the AFG CEO said.

“All Australians need to start joining the dots here. Banks have accepted that consumers have voted with their feet however recent public statements by some seem to suggest the same organisations wish to take back that market share by demonising mortgage brokers and destroying the value they bring.”

The AFG head’s remarks follow a statement from the Mortgage and Finance Association of Australia (MFAA) earlier this week which suggested that the “big banks are using brokers as a shield” to deflect attention from their own failings.

Mr Bailey also warned that attempts to undermine the broking industry could skew competition among lenders by reversing inroads made by non-majors following “anti-competitive” government interventions during the global financial crisis.

“If mortgage brokers are taken out of the equation, the non-majors and any semblance of competition will be decimated,” the CEO said.

“The loss of tens of thousands of jobs in small business across the country won’t be the only price paid. Make no mistake — the losers will be every single mortgage holder in this country.” 

Mr Bailey made the comments after the release of AFG’s Mortgage Index, which revealed that, over the past five years, lodgements by AFG brokers for loans offered by non-majors increased by 14.9 per cent.

The proportion of loans sent to the non-major banks in 2018 came in at 36.7 per cent, up from 21.8 per cent in 2013.

The AFG index also showed a 1.8 per cent drop in lodgements when comparing the third quarter of 2018 to the same period in 2017.

Mr Bailey, however, said that he wasn’t surprised by the “softening”, attributing the decline to changes in dwelling values.

“Given the timing of public holidays and suggestions that Sydney house prices are coming off a little, the fact that there does not seem to be any growth is not surprising,” the CEO said. 

The only market in the country that appeared to be generating ongoing growth was Victoria.

Despite recent softening, the total value of lodgements has increased from $8.3 billion in Q3 2013 to $13.9 billion in Q3 2018. The average loan size has also now grown from $392,407 to $499,608. 

Looking at loan types, the index revealed a 32 per cent fall in interest-only (IO) home loans written by AFG brokers over the past five years, from 52 per cent in the third quarter of 2013 to 20 per cent in the same quarter in 2018. 

This can largely be explained by macro-prudential measures that were brought in last year to limit the flow of new IO residential loans to below 30 per cent.

However, Mr Bailey suggested that as some lenders have been indicating they again have “an appetite for this type of lending, we would probably call this the bottom for this segment of the market.”

[Related: MFAA warns of banks using brokers ‘as a shield’]