A powerful tool

Over the last few months, Australia’s bank and non-bank lenders have become very aggressive on the pricing front, with some slashing up to one per cent from their standard variable rates in a bid to get the edge on the competition and win business.

In just one month, Advantedge cut the interest on its one-, two-, three-, four-, and five-year fixed rate products – giving it one of the most competitive fixed rate product suites on the market, with a leading one-year rate of just 4.64 per cent.
In addition, Liberty shaved 25 basis points from its variable Liberty Sharp home loan, taking the new rate to just 5.34 per cent, while Westpac slashed the interest on its one-year fixed rate, taking it to 4.79 per cent.

In the same month, mortgage manager AFM slashed 25 basis points from its various variable rate home loan products, Aussie dropped its two-year fixed rate by 0.4 per cent to 4.89 per cent and non-bank lender RESIMAC stole 50 basis points from its entire specialist lending product range.

All of this interest rate cutting shows just how competitive the current mortgage lending landscape is.

Yet, lenders and brokers alike understand that price cutting will only help them win so much business.

When the rest of their competitors are going toe-to-toe on price, it is only fair to expect that Australia’s lenders may try pulling additional levers.

nMB’s managing director, Gerald Foley, says one lever lenders can pull is broker commissions.

According to Mr Foley, margins are returning to lending, so there is no reason for Australia’s banks and non-banks to hold back on lifting broker commissions.

“There is continual pressure on the banks to grow market share and as long as they can remain competitive in terms of product and price, I think there is some room to move,” he said.

“It will be a brave lender to lead that charge, but once it does, the rest will find a way to follow.”

Vow’s chief executive, Tim Brown, agreed that commissions would increase, but said he believes lenders will use them as a lever to drive more business from time to time, rather than make one 'official' movement.

“I think there will be periods where lenders will lift commissions for a certain amount of time for market share reasons, or for a promotion,” he said.

“We’re seeing that happening now, where a couple of the banks are running special promotions and they’re upping the upfront [commission] for a period of time.

“Obviously it’s very competitive out there now and everybody’s fighting tooth and nail to get market share.”

Indeed, over the last couple of months, the industry has seen some banks – namely Westpac and ME Bank – introduce various broker commission incentive programs.

In May this year, Westpac committed itself to paying any aggregator that meets its “individual volume hurdle” an additional 10 basis points in upfront commission on all loans settled.

A few weeks earlier, ME Bank launched a ‘limited time only’ commission incentive program.

As part of the program, brokers who settled in excess of $1 million with the bank between 1 March and 30 June 2013, could receive up to 30 basis points more in upfront commission.

And while these are the only two lenders to pull the commission lever so far this year, there are rumours that others – including Bankwest – could be set to follow suit.

So, with that in mind, I guess it is all a case of ‘watch this space’.