Refinancing competition accelerating channel conflict, brokers warn

The behaviour – which was only offered directly to the broker client at the point of discharge (despite brokers having submitted repricing requests and asking for “best and final offers”) – was slammed by both the FBAA and MFAA.

However, several brokers have noted that the issue of channel conflict has ramped up in recent weeks, as refinance activity smashes records.

One example provided to The Adviser related to a broker client refinancing away from CBA who was offered, at the point of discharge, a two-year fixed rate at 4.84 per cent – nearly 100 basis points (bps) less than the broker could obtain via broker pricing tools.

While the offer ultimately benefitted the client, the broker in question flagged that this offer only came after hours of work had been done and a new loan had been lodged and approved with a different lender, wasting time and energy and putting the client through unnecessary paperwork.

Similarly, Bernard Desmond from Blank Financial noted that he had recently tried to assist a new client with their refinancing and new purchase requirements with ANZ, only for the bank to offer the client a deal not available through the broker channel once they had reached the point of discharge.

He told The Adviser: "In spite of doing a pricing approval and giving their existing lender all opportunities, they did not come to the party with their best offer. 

"Finally, upon giving the options client decided to move away from ANZ (which me and my team spent in excess of 100 hours collectively in putting together their four applications), and after the loans were unconditionally approved by Westpac and the discharge form was sent to ANZ, their retention team has come into action."

Mr Bernard outlined that ANZ contacted the client directly to not only rate match the Westpac offer (with a total discount of 2.40 per cent on the bank's owner-occupier index rate and 2.60 per cent off the variable investment index rate) but also offered the client $4,000 in cash back to stay.

After the client had advised Mr Bernard of the offer, the broker recommended that they stay with they accept the offer and stay with their existing lender.

"This is obviously good for the client but bad for the broker business as it has left us out of pocket with no new business.," he said.

"This kind of behaviour is on the rise from lenders where they are doing everything to retain existing customers however they won't collaborate with the broker upfront in delivering these outcomes to their clients."

He added that the issue was compounded as the Best Interests Duty means that brokers are obliged to recommend the best course of action for the client, which now might come at a cost to the broking business (given the time and effort wasted and the threat of clawback if the lender turns the client into a direct-channel borrower).

Online discharge requests removed

Moreover, ever since Australia entered its first rising rate cycle in over a decade (which has seen the cash rate increase by 1.75 per cent in just 14 weeks), lenders have been making it increasingly difficult for brokers to discharge loans, brokers have warned.

For example, some lenders – including the Commonwealth Bank of Australia (CBA), Macquarie, ING, Suncorp Bank and Teachers Mutual Bank – are no longer allowing brokers to submit a discharge authority online. 

Instead, broker clients are now required to ring the bank directly and request one, which brokers have said not only undermines their position, but also provides the lender with another opportunity to poach the client away from them.

Speaking to The Adviser about the issue, Anthony O'Flynn, senior mortgage adviser at IFA Mortgages, noted that the issue “seems to have got worse over the last two weeks”.

He said: “To me [this is] a toxic environment, when all banks need to do is be proactive with their clients.

“With all our clients, our first port of call is always to reprice with the current lender and see where the land lies.

“However, if we then locate a better offer with another lender, we go to the client with the comparison. We then lodge the discharge to the outgoing lender.”

According to Mr O'Flynn, it is only then that the lender contacts the client directly and increases the discount offering and offers cash incentives to stay.

“How do we ever compete with this, regardless of our service offerings?” Mr O'Flynn said. “Cash wins out most of the time.”

71% of reprices are now escalated

The ability for brokers to be able to refinance their clients in a timely and effective manner is crucial, as it comes at a time when refinance activity is expected to only increase further. 

Following the Reserve Bank of Australia’s move to increase the cash rate by 50 bps this month, several figureheads in the industry have flagged that brokers are receiving more inquiries from mortgage holders about refinancing.

Speaking to The Adviser, Adam Grocke, chief executive and founder of repricing and refinancing platform Sherlok, said: “The reality is that seven of 10 loans that are refinanced will be refinanced by a broker from a broker, because brokers now write 70 per cent of loans across Australia...

“2022, 2023 and 2024 will see refinancing activity double, maybe even triple, as clients roll off ultra-low fixed rates... in some cases moving from 1.69 per cent to over 4 per cent,” he said.

“Repricing existing clients should be the first call to action to offset the rate rises and reduce client churn. It’s a win for the client, broker and lender. Then the brokers should consider refinancing if the existing lender doesn’t want to play ball to keep the client.”

However, Mr Grocke revealed that this was becoming harder for the channel.

He told The Adviser: “Unfortunately the change in interest rates has also seen a change in some [lenders’] behaviour towards helping brokers retain clients. It’s a noticeable difference with approximately 71 per cent of reprices now needing to be escalated to [achieve] pre-rate rise results and in some cases SLA’s doubling. Let’s not forget there is a client, a real person at the heart of this who is paying too much interest whilst trying to manage rising rates and rising costs of living.

“I applaud the brokers who are proactively reviewing existing [clients’] loans to ensure they are on competitive rates, and this is a growing trend. However, lenders need to see this as an opportunity to work with brokers to retain existing clients.

“There are some cases where a lender could have accepted a small discount via the initial reprice request and everyone would have been happy. But instead, they waited for the discharge request to offer a best in market rate and $2,000 cash to keep the client. It simply wasn’t needed if they worked with the broker on the initial request.

“The lenders who proactively work with brokers will see a significant extension in the life of loan, which will more than offset the short term threat of reducing net interest margins on these loans," Mr Grocke concluded.

[Related: Deplorable discharges]