Brokers beating banks with loan renegotiation

by Miklos Bolza09 May 2017
Broker clients are overwhelmingly more likely to renegotiate their mortgage rates after five years, a new survey has found.

A KPMG report, entitled The Australian Home Loan Market, polled 622 ‘mass affluent’ professionals earning between $70,000 and $250,000 per year and found that 44% preferred using the broker channel for home loan origination.

Of these, 67% renegotiated their interest rates at least once every five years. This was 16% higher than the 51% of those who renegotiated their home loan rates through the bank’s proprietary channels.

Total numbers were lower across banks and brokers, with 61% of all respondents renegotiating their home loans or switching banks at least once every five years.

There are many reasons why broker clients changed their rates or mortgage products more often than the banks, Geoff Rush, partner in management consulting and co-author of the report, told Australian Broker.

“Given residential property prices, the current high level of indebtedness of Australian households and questions about the affordability of residential property are hot topics at the moment, it does not surprise me that this encourages borrowers to shop around to find home loan deals that best suit their particular needs.”

Trail commission may also be a contributing factor with brokers inclined to contact their customers to see if they could locate a better deal, he added.

Choosing your broker

Age plays a major role in whether a respondent was more likely to use a broker over the banks. Those aged 30 to 49 had the greatest preference at 45% compared with 31% for those aged 21 to 29 as well as 29% of those aged 50 to 65.

Factors deemed most crucial for those choosing a broker included wanting to find the best deal (51% of respondents), seeking an easier loan application process (29%) and choosing someone with a solid reputation (14%).

“The data from our research suggests the key factor behind the increasing use of brokers for home loan origination is the perception that brokers can offer a better deal (price and product features) because they work with multiple lenders and therefore can find an offering which better fits with the end customers’ needs,” Rush said.

Customer experiences

The KPMG report also asked respondents about the six customer experience pillars:
  • Empathy (understanding the customer’s circumstances)
  • Personalisation (using individualised attention to meet client wants)
  • Integrity (being trustworthy)
  • Simplicity (minimising customer effort and reducing friction)
  • Expectations (managing, meeting and exceeding expectations)
  • Resolution (turning a poor experience into a positive one)
Brokers performed lower than banks on all six pillars, the report found. On a scale of one to five (worst to best), brokers scored 3.5 on empathy, personalisation and resolutions. The highest scores for the third party were for integrity (3.8), simplicity (3.7) and expectations (3.6).

While there were no definitive answers as to why this was the case, Rush said it may be because of heightened expectations by the client before approaching a broker.

“That is, they believe that the process should be easier as the broker will do all the ‘heavy lifting’ on behalf of the customer throughout the end-to-end process,” he said.

“There is also the possibility that the process can become confusing to the customer as at some point the lender takes over from the broker. This raises the question of who owns the customer and, if there are any breakdowns in the process, who is responsible for fixing it?”

Finding balance

With the increasing market share of brokers for home loans amongst mass affluent respondents, the report suggested considering where the long-term equilibrium for brokers would lie.

This will be difficult to predict, Rush said. However, he noted that the determining factors will include:

•    Improvements that banks make to their existing systems and processes and how well they can enhance the end-to-end customer experience
•    How well brokers can share insights and feedback with lenders to continuously improve the experience of their joint customers

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Brokers earn $142k on average per year

COMMENTS

  • by Ed Ridge 9/05/2017 8:56:14 AM

    And that is one of the reasons they commissioned Sedgwick.

  • by Tipping Point 10/05/2017 10:30:42 PM

    Confirms where consumers 1st thought is. The competitive advantage the broker has is many tools in the toolbox and the ability to sell against a single point of offer.

    We saw Westpac put on 600 branch managers when the broker channel was exposed via GFC and they couldn't manage because there was no learning process, where in the past you spend 4 years under an experienced manager earning your stripes. Broker channel marched on unabated.

    Given the tipping point where the consumer (and business customer) is looking for brokers, before banks has past, Banks need to accept brokers are actually a positive and a variable cost where the following costs are removed from the Bank:- No holiday pay, payroll tax, sick leave, redundancy, unfair dismissal, office indiscretions, travel costs, computers, motor vehicle costs, occupancy, superannuation, maternity, paternity, long service leave, rent, outgoings, staff appraisals, bonuses, phones, unengaged employees, OHS costs, general insurance costs, broker data entry, broker NYC forms, and...................... no wage to pay! Further, you still have clawbacks?? This was a from 15 years ago when a broker only had 5% of the market and had to churn to put food on the table.

    Mr Sedgwick is an AO and we respect this. Taking the above into account and seeing the Bank's profits march unabated driven by mortgages, your getting economies of scale with the variable broker cost.

    Personally I would have included a few positives in the report and questioned why Banks can throw $1500 to a new client, yet leave the broker (who is actually the customer) with a contingent liability for up to 2 years.