Must Read

Damien Percy
September 14 2020 AFG Securities updates clawback structure
The in-house lending division of AFG has amended its clawback structure so that full clawback only l...
September 14 2020 Victorian government launches swathe of grant packages
The Victorian government has announced a $100-million support package to assist sole traders in the...
Matt Comyn new ta
August 12 2020 CBA could keep Aussie, CEO reveals
Commonwealth Bank may scrap plans to demerge from Aussie Home Loans, CEO Matt Comyn has revealed. ...
Alan hemmings headshot
August 11 2020 Major brokerage appoints new CEO
The former GM of Oxygen Home Loans has been named as the first CEO of major brokerage Home Loan Expe...
August 3 2020 Melbourne businesses forced to close, banks to remain open
The Victorian Premier has announced that thousands of businesses will need to shut their doors this ...
OnDeck 850
July 30 2020 US fintech to acquire OnDeck
US financial services technology company Enova has announced that it is to acquire SME lender OnDeck...
Rankings and reports

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.

Latest Podcast

WMH logo article

November 07: Down to distribution

Staff Reporter 3 minute read

Will non-bank lenders be forced to cut broker commissions to combat tighter margins? Mortgage Business investigates.

For many brokers it was a rite of passage: build a loan book, install systems, develop a network, and then quickly move into mortgage management.

Today, according to Homeloans Ltd's general manager of sales Troy Phillips, that door has been firmly slammed shut.

"Wholesale lenders are already cutting back on funding to mortgage managers and in the end the smaller players are going to find it increasingly difficult to access funding. Funders simply don't want to deal with hundreds of mortgage managers anymore," Phillips says.

Trevor Solomons, general manager of origination at AIMS, agrees with Phillips' take on the evolving non-bank sector.

"It is changing fast; business models that were successful in the past may be obsolete in the future," Solomons contends.

"Non-banks need to think more like banks — the focus needs to be on bringing in additional fee income streams through debit card services which support the 'transactional mortgage'. Banks generate over 60% of their profit via fee-income services."

Facing tighter liquidity and leaner margins, Solomons says the mortgage management industry is undoubtedly under pressure and it's only going to get worse.


"I can't see margins increasing. The cost of funds has increased for the short- to medium-term, but when normality returns, market forces will dictate that lenders' rates will drop accordingly," he says.

"Competition between lenders on price has been hot for some years and it will not change. The question I ask is whether non-bank lenders can continue without scale. My thought is probably not."

The lending landscape has changed dramatically since the mortgage management industry boom at the beginning of the decade. In the early days, mortgage managers could comfortably undercut the banks and still have plenty of margin left over to pay generous broker commissions.


Broker commissions: under pressure


But with shrinking margins hurting mortgage managers, will broker commissions now come under pressure?

For Phillips, the answer is not a simple one. Pointing to the role brokers have played in developing the non-bank sector, Phillips says it's unlikely that non-bank lenders will have the weight or the mettle to sideline one of their key distribution channels.

While he acknowledges that non-bank lenders have taken back some ground by way of clawbacks — which effectively represent a reduction in commission — he says they're unlikely to take the lead in cutting broker commissions to arrest declining margins.

"If they [mortgage managers] are looking to avoid paying broker commissions, they will need to turn to retail distribution — which is expensive to set up and requires considerable ongoing resources to manage," Phillips says.

Whether broker commissions in their current form are sustainable, however, is a question AIMS' Solomons is asking, saying a re-think of the flat commissions structure is overdue.

"There needs to be a different commission model which is aligned with different product margins. Today there's only a 'one size fits all' commission model," Solomons says.

"Internal commission models in banks and other intermediaries recognise the difference in product margins and hence different products attach to different commissions structures."

The question of commissions aside, Solomons says increased costs of sourcing funds  remains a concern to lenders and may force a rethink of distribution strategies.

"Everyone is looking at their distribution costs  and we're no different," says Solomons.

"We've recently increased our distribution by partnering with brokers but we are also putting significant resources into other distribution channels."

Opening new networks outside its traditional lending channels has been a key driver for AIMS as it aims to strengthen its distribution network through engaging brokers.

There is still a considerable focus on building the business' retail distribution via the lender's franchise and direct models, however, which Solomons sees "as the backbone of our distribution".

Solomons says non-bank lenders will have to decide for themselves whether broker distribution is a viable standalone channel.

"What we may see is the non-bank lenders becoming the aggregators of tomorrow and effectively entering the broking market in one form or another."



November 07: Down to distribution
TheAdviser logo


Latest Opinion

250x250 NICK
Using change agility to optimise business
Disruption isn’t unusual anymore – it’s the norm. More so, there’s an increasing realisation that disruption can bring incredible opportunity ...
Matthew Johnson
The future of broking
There is no doubt COVID-19 has brought further disruption to the broking industry over the last few months and it has truly challenged our mode of ope...
Steve Kane
Digital transformation is taking mortgage broking businesses to new heights
Innovative brokers are discovering that when it comes to maintaining customer relationships, the highest levels of customer service and efficiency com...


latest issue
The Adviser magazine latest issue
The Adviser magazine latest issue
A lift in support

When it comes to banking and finance, there is one thing that customers put above all else when choosing a lender: trust. Creating trust is a long and complex process, but one segment of the market seems to have been doing it particularly well this year: customer-owned lenders.

The Adviser magazine latest issue
A new chapter for SMSF loans

While many feared that the exodus of major banks from the SMSF loans space would spell the end of SMSF borrowing, the volume of SMSF loans remains steady, with many non-bank lenders filling the gap. We take a look at the ins and outs of SMSF lending.

The Adviser magazine latest issue
The changing face of LMI

Lender’s mortgage insurance plays a leading role in ensuring borrowers don’t take on more home loan debt than they can service. Recently, the market has consistently been the subject of discussion. In this feature, we take a look at what’s been happening in the LMI space and how keeping pace with these changes can allow brokers to act as the go-to guide for borrowers.

Read the latest issue of The Adviser magazine!
The number one magazine for mortgage brokers
The Adviser is the number one magazine for Australia's finance and mortgage brokers. The publications delivers news, analysis, business intelligence, sales and marketing strategies, research and key target reports to an audience of professional mortgage and finance brokers
Read more