Mortgage brokers gain market share but lose power: JP Morgan

Mortgage brokers are now writing about 43% of new home loans in Australia but have lost market power to their lender partners, according to the latest volume of the JP Morgan/Fujitsu Mortgage Industry Report.

The latest report says broker volumes have continued their recovery back to pre-GFC levels during 2011. Before the GFC brokers’ share of new lending peaked at about 45% in mid-2007. 

However, the commission pool is sitting at about two-thirds of pre-GFC levels. 

Along with the drop in profitability, the report notes that the “broker / funder” relationship is at an “interesting point, with market power having slipped from brokers since the onset of the GFC”. 

Despite the major banks cutting broker commissions following the onset of the GFC, the report says broker commission rates are still high compared with other jurisdictions. It says power has moved from the “provider of the demand for lending (i.e., the broker) to the provider of the source of funding (i.e., the bank)”. 

The report notes that brokers are still a “firmly entrenched player due to customer preference” as well as being a profitable channel for lenders.

Among the major lenders, the report notes that the three of the four big banks have remained focused on using mortgage brokers to sell their products. 

he Commonwealth Bank has retained broker usage levels despite a new focus on profitability over growth; ANZ continues its high broker usage rate to compensate for its underweight branch presence, while NAB has “aggressively re-engaged with the broker channel to accelerate its loan book growth profile following the acquisition of Challenger’s mortgage distribution arm in August 2009. 

Westpac is the outlier, focusing on its proprietary distribution channels (with mixed results) the report says.