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Big four dominance a threat to broking: ING DIRECT

by Staff Reporter12 minute read
The Adviser

Staff Reporter

Australia’s mortgage brokers are in danger of becoming obsolete, ING DIRECT’s executive director delivery Lisa Claes has claimed.

According to Ms Claes, the current price war between the majors is actually doing little to promote competition in the market.

“I have to declare my hand here. ING DIRECT is the 5th largest home lender in the country and currently delivers almost all of its home loans via the broker channel. However this will only continue while the broker channel has relevance to our customers,” Ms Claes said.


“Let’s look at the facts. Right now nine out of 10 new home loans are being written by the big four. That has climbed from a decade ago when it was seven in 10.

“The smaller competitive wholesaler mortgage manager end of the market has declined from 10 per cent in 2006 down to 5 per cent in 2011.

“The broker channel itself, having peaked at 45 per cent of the market in 2007 has plateaued at around 41 per cent, what’s more brokers are sending most of their business to big four banks, institutions that are likely to have a preference for their own branch distribution networks.”

Ms Claes said the smaller end of the market has started to disappear since the beginning of the Global Financial Crisis.

As such, brokers are losing one of their key propositions – choice.

“Sure competition in the current slowing home loan market is fierce but the number of players is getting less. Fewer players will give brokers fewer options and therefore less potential to add value for customers,” Ms Claes said.

“And a lack of competition and a concentration of market power compounded by a drive to maintain profitability, particular in a sluggish market, will tempt banks to drive customers to direct channels and reduce commissions in a bid to cut costs. The interesting point here is that brokers are reducing their relevance, perhaps inadvertently, by driving 80 per cent of their business to the big four.

“What do brokers think will happen when fewer players have a bigger slice of the pie. Looking at any other industry the answer is simple, greater pricing power for the surviving incumbents and less choice for consumers.”

Ms Claes said brokers need to be completely transparent in their recommendations for customers and show they are adding real value for the customer.

“Whatever the outcome brokers cannot assume their success over the past 15 years will continue and market concentration of home lending to the big 4 could be the biggest threat they face.”

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