How high can broker market share get?

Why are borrowers choosing brokers over banks?

How high can broker market share get?


By Ryan Johnson

Mortgage brokers are writing a greater share of loans than ever before, according to the latest MFAA data, with the broker channel settling a record 74.1% of residential home loans in the first quarter of 2024.

The significant increase – up 4.5% compared to Q1 2023 and a substantial 22% jump from Q1 2020 – underscores the value proposition brokers offer borrowers.

While this trend suggests that brokers are now the dominant force in the mortgage industry, the question remains: is there a ceiling to this growth?

Bianca Patterson (pictured above), mortgage specialist and director at Calculated Lending, doesn’t think so.

“It’s time for the industry to change this narrative. Customers are continually choosing to use brokers in record numbers. We are the primary channel, and I don’t see why there couldn’t be a time when we are the choice of 100% of borrowers.”

Why are borrowers choosing brokers over banks?

Imagine a bygone era before the Internet, when securing a home loan involved face-to-face meetings, a handshake, and blind faith in your local lender. 

After faxing over meticulously organised shoeboxes of paperwork, you enter your branch where a loan officer with a rolodex of products would present a few pre-determined mortgage options.

To compare, you would have to pick up the phone or drive to the next nearest branch whose clerks have a sales pitch to convince you that their products are better than their competitors.

Fortunately, the Internet streamlined processes and democratised access to mortgage products. But would this mean that borrowers could finally forego the pushy sales tactics of the banks and broker their own loan?

Clint Howen tried this experiment when he launched Hero Broker in 2018.

Consumers could “be their own broker” and secure their mortgage in a couple of minutes without any human interaction. They also had access to the advice of mortgage brokers through the platform.

Examining a pool of 1,000 applications from borrowers who had already selected a loan, only 14 were willing to fully complete the application online without human interaction.

Interestingly, Gen X and Baby Boomers were more inclined to proceed without human interaction compared to younger generations.

With going direct too difficult for many, borrowers were left with two choices:

  • Buy directly from a lender that only sells their own mortgage products.
  • Use a mortgage broker who has a legal obligation to recommend products in the borrower’s best interests from a panel of lenders. 

As time went on, Patterson said there has been a “clear changing of the guard” and borrowers have made their choice.

“The borrowers who had the traditional bank-manager relationship are nearing retirement now, and while they have shown fierce loyalty to their financial institutions, their children are not,” Patterson said.

“Modern borrowers have lost faith in the lenders. The Internet has taught them to shop around for better rates, they rarely have a lender preference, and they care less about branch networks and relationships and more about the lender's ethics and investment choices.”

The role of a broker in a complex environment

The recent surge in mortgage broker market share can also be attributed, in part, to the growing complexity of the interest rate environment.

Lenders have increasingly diverse policies for assessing income and determining minimum living costs, according to Patterson.

“We see borrowing capacities vary by hundreds of thousands of dollars depending on the Lender, their risk appetite, and how they interpret the client's financial position,” Patterson said.

For borrowers navigating this intricate landscape, relying solely on advertised rates to choose a lender can be risky.

"Without expert guidance, a borrower is out there stabbing in the dark hoping the lender they choose to apply to directly (which is generally chosen on rate alone) will look at their income in a favourable light.”

This highlights the crucial role brokers play in today's mortgage market.

“Our clients choose to work with us as they are looking to partner with an expert who they can trust to handle their individual circumstances, goals, and objectives with diligence and great care,” she said.

“They rely on us to know the ins and outs of lenders' policies and products, to empower them to make good money decisions, to educate them on where the limits are and why they exist and to guide them through choosing and applying to the best lender option for their circumstances.”

Beyond immediate loan applications, brokers invest significant time in preparing clients for homeownership, with the client-broker relationship often extending well beyond loan origination.

“We are sometimes the first person to teach them about money, budgets, and the dos and don’ts of borrowing and are often the only person in their life that they have to talk to about their finances and goals,” Patterson said.

“A broker’s role can often entail being a confidant, a motivator, a mediator, and a voice of reason for our clients, and what they need from us evolves over the course of our relationship which often surpasses the term of their loan.”

The mortgage market: What is most important?

The landscape of mortgage lending has undergone a dramatic shift in recent years. A decade ago, banks held a commanding lead, originating over half of all loans (55.1%). Today, the tide has turned decisively in favour of brokers, leaving the banks to squabble over one quarter of the market.

Of course, lenders have tried to take back market share – with some tactics being criticised as undermining the mortgage broking community and disadvantaging customers.

However, Patterson emphasised that while broker market share has grown considerably, what brokers do hasn’t fundamentally changed in this time.

“Our profession is based on having great conversations, forming meaningful relationships, and having a genuine interest in helping our clients towards their goals. We don’t have direct products to offer, we don’t have the marketing budgets that the big banks do; our value is in our experience and advice,” Patterson said.

On the other hand, Patterson said lenders had spent the last decade trying to “reinvent the wheel”.

“They are undercutting each other, introducing new subsidiaries, not rewarding existing customers for their loyalty, and putting profits before a customer's access to relationship-orientated bank staff,” she said.

“Have brokers taken the market share? or did the banks hand it to us when they lost sight of what is most important – our customers?”

So how high can broker market share go?

The answer remains to be seen.

 While a complete monopoly seems unlikely, Patterson's sentiment reflects the growing influence of brokers. Their focus on customer service and personalized advice appears to be resonating with borrowers.

The future of the market hinges on how lenders respond. Can they adapt their strategies to prioritise customer needs and build trust, or will brokers continue to gain ground? Ultimately, the channel that delivers the most value to borrowers is likely to be the one that thrives.

How high do you think broker market share can go? Comment below.

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