Three of the industry’s leading aggregators explain why they invite competition into the broker channel and predict which lenders will move into this area in the coming year
Why is it important you have a strong panel of non-major banks?
Frank Paratore: It is important to create competition in the industry. The service parameters now offered amongst the non-banks are at a high level and by having more players in the marketplace it means you are not [obliged] to go with just a handful of institutions. Some of the non-major banks are dealing with less volume and so can offer unique service – Suncorp for instance announced a 48-hour turnaround time, where with the majors you might not get that type of service.
Mark Hewitt: It is important that brokers are able to offer their customers a wide range of options and they have access to a lender panel that will meet each individual customer need. Non-major lenders also play a very important role in this and have been instrumental in driving the recent high level of completion which has been of great benefit to borrowers.
Tim Brown: It’s important to maintain competition. We have seen what happens when competition is eroded. The consumer suffers with rates being increased and no innovation in product. This happened during the GFC, which saw many of the majors lift rates and increase fees while reducing commissions to brokers. This is while the majors saw a significant increase in their margins.
Have you seen an increase in volumes through the non-major banks in the last 12 months? Why do you think this is?
FP: We’ve seen a slight but steady increase of three per cent over the last 12 months towards shifting more volumes to non-banks. I think there are a few reasons; obviously the low interest rate, especially the very attractive fixed rate that many of the non-banks are offering. It is also a little bit easier these days for clients to shift from one lender to another, there are not as many obstacles and the general improvement in service we are seeing from most of the non-majors over the last 12 months all are the reasons we are seeing more people use the non-majors.
MH: The share of our brokers business going to non-major lenders so far this month is 26 per cent, which is the best it has been since the GFC. This is off the back of some very competitive product and service offerings, with Macquarie leading the charge.
TB: Yes, quite a significant increase. We have seen a 10 per cent shift away from the majors. Twenty-four per cent of Vow’s business is now written by non-majors; this excludes their subsidiaries such as St George and Bankwest. Improvement in funding costs and greater access to overseas markets for funding has seen greater competition, helping bring down the overall costs of funds. During the GFC, overseas funders diverted funds to local banks which effectively saw overseas markets closed for business. Australia relies heavily on overseas funding, especially for corporate lending. Over the last couple of years we have started to see these markets return which has seen an increase in the flows of funds into Australia which in turn has seen the lenders’ costs of funds reduce.
In your opinion, are consumers now a lot more open to having their mortgage with a bank outside the major four? Why do you think this is?
FP: Yes, they are more likely to have their mortgage outside the big four and it all comes down to people wanting to pay off their loan as soon as possible. Clients are no longer looking for a glossy brand. We are definitely seeing that people are more accommodating with someone outside the big four. This also has to do with the broker being a little bit more accepting of the non-major banks. We have seen a broker mindset change and now they are starting to have rapport outside the big four.
MH: Most definitely. The non-majors that survived the GFC have proven they are around for the long haul and let’s not forget that in two of them (Citi and ING DIRECT) we are talking about major world banks, and in others like AMP, Suncorp and Macquarie, substantial organisations in their own right. The new generation of borrower is also open to options outside of the majors and, dare I say it, not sticking to the obvious like maybe their parents are inclined to do.
TB: Yes I do. I believe the concerns around the liquidity of the non-major banks have all but disappeared. With the government showing during the GFC that they were willing to guarantee regionals and credit unions as well as the major banks, clients’ concerns around liquidity of smaller funders evaporated. Add to this [the fact that] a lot of the regionals do not have the same large fixed costs in branch distribution to support and are happy for brokers to fill their voids interstate. This in turn allows them to be much more competitive and some of the rates they are currently on offer are often better than the majors. Customers are very conscious of current rates at that moment and use the internet to shop but not necessarily buy. This is where they become familiar with some of the non-majors offers and then engage a broker to better understand the differences between the different lenders offers.
We’ve recently seen the likes of ME Bank coming into the broker channel. Do you expect to see more lenders follow suit in the next 12 to 24 months?
FP: I’d love to see more lenders come into the broker channel and there are some that are doing that very successfully. Take Newcastle Permanent Building Society [for example], and I know Gold Field Credit Union is starting to talk to a few different players. I say that the more competition we have, the better.
MH: This year at AFG we have seen Bank of Queensland join our panel in WA and NSW and Bluestone join us nationally and we continue to be open to new lenders that can meet the criteria of adding value to our panel.
TB: I expect Bank of Queensland to return to the intermediaries market within the next six months and potentially some of the Asian banks such as Bank of China increase their presence. We are certainly seeing a return of overseas funders through the wholesale markets, which in turn is seeing an increase in funding through mortgage managers.
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