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In a bid to regain ground from brokers and reclaim mortgage market share, banks are investing in their proprietary channels to win back home loan customers, according to a new report.
Australian banks will gradually steer borrowers away from mortgage brokers and towards their more profitable proprietary channels, according to a new report from S&P Global Ratings.
In the ratings agency’s new report titled Australian Banks Want Borrowers Back – And Mortgage Brokers Out Of The Way, S&P said that by driving more customers to in-house channels like branches, call centres, and increasingly – digital channels – banks could boost their net interest margins and profitability.
Banks are heavily investing in their proprietary channels to regain ground from the broker channel, which wrote a record 76.8 per cent of all new home loans in the March quarter.
Majors have already laid out plans to shift focus away from broker-originated lending to drive stronger returns, with National Australia Bank (NAB) describing proprietary lending as one of its “key priorities” amid a 25 per cent year-on-year jump in new proprietary home lending.
Similarly, at the Commonwealth Bank of Australia (CBA), the proportion of broker-originated mortgages continues to fall, with 68 per cent of new home loans coming from proprietary channels in 3Q25 (its most recent trading results).
However, in its new report S&P said that while many consumers still favour in-person interactions for property purchases, a new generation of tech-savvy borrowers is embracing digital options.
Digital lending offers a key opportunity for banks to erode mortgage brokers’ dominance, S&P said.
Technology, including artificial intelligence, could help banks cut costs and improve speed to market, ultimately leading to a better customer experience. These sorts of digital services allow banks to pass on savings from the “lower acquisition costs” to borrowers, meaning they could potentially offer customers cheaper rates.
Banks could also embed these products with a wider range of online products, increasing opportunities to cross-sell other banking products, potentially boosting customer loyalty, the analysts said.
Australian banks are already implementing differential pricing between their third-party and proprietary channels to attract borrowers, S&P said, highlighting the Unloan proposition from CBA.
Commenting on the trend, S&P Global Ratings credit analyst Simon Geldenhuys said: “We believe banks will capitalise on this.
“By digitising the mortgage process and offering greater price transparency, banks might dilute the mortgage broker value proposition.”
‘Brokers may face increasing pressure over time’
However, the report said that any marginalisation of brokers will be gradual as banks grapple with legacy technology and customers adjust to become more comfortable with direct digital lending channels.
Speaking to The Adviser, Geldenhuys said: “The broker business model remains resilient and well-embedded for now, particularly for complex borrowers. That said, brokers may face increasing pressure over time if banks were successful in delivering fast, competitive, and user-friendly direct lending options.”
Responding to whether non-bank lenders could become more appealing partners for brokers if the majors reduce broker reliance, Geldenhuys said: “Approaches among the smaller regional and mutual banks can vary significantly. Some mutuals simply do not use brokers.
“That said, smaller banks could become more appealing partners for brokers if the major banks were to reduce their reliance on the broker channel and shift their focus to proprietary channels to improve margins.”
Commenting on which banks are most likely to succeed in shifting their originations mix back to in-house channels, S&P said CBA was the best placed due to its dominant proprietary lending channel in the market. It said that of all banks, CBA had written more than 45 per cent of all non-broker-originated loans in the three months to 30 September 2024.
Speaking about the impact of banks winning back market share, Geldenhuys said: “Less mortgage origination through brokers, all else equal, means better returns for banks and potentially better pricing for borrowers.”
The ratings agency noted the shift was “unlikely” to materially affect its bank ratings over the next two years, but added: “That said, if banks are successful, it could boost margin and profitability. This could shore up the already strong capital and earnings profiles of the Australian major banks.”
Looking ahead to the longer-term impact on brokerages, Geldenhuys told The Adviser: “If banks succeed in offering simpler, faster, and more transparently priced mortgage options through proprietary channels, some borrowers may view brokers as less essential, especially for straightforward loans.”
[Related: Proprietary channel a ‘key priority’ for mortgages: NAB]
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