Lender competition boosts mortgage incentives, commissions

Declining market share has seen competition heat up between the majors, leading to greater incentives for brokers and their clients – as well as commission hikes.



Declining market share has seen competition heat up between the major banks, leading to greater incentives for brokers and their clients – as well as commission hikes.

The big four's market share has fallen from 85.4% to 84.5% in recent months, according to the latest APRA statistics.

In the fight to maintain market dominance the major lenders appear to have increased mortgage incentives including fee waivers, interest rate discounts and cash-bank incentives, says Outsource Financial CEO Tanya Sale.

A recent RBA discussion paper, Trends in the Funding and Lending Behaviour of Australian Banks, found the spread between actual borrowing rates paid by households and the cash rate has fallen in recent years as mortgage discounts have become more widespread.

“From the lender’s perspective it is advantageous to compete for new borrowers with discounts because it allows the lender to offer attractive terms to potential new borrowers, without affecting the profitability of outstanding lending,” said the report.

But Sale believes it is unlikely these incentives and discounts will have much impact on consumer choices.

At the end of the day if that bank doesn’t have a product that the client needs, no matter what they offer you you’re not going to go for them. From what I can see with what’s coming through Outsource anyway that hasn’t been a major reflection of who the settlements are going through.”

The increase in lender competition that these incentives and discounts signal, however, is great news for brokers, says Sale.

Mark Davis, director of the Australian Lending and Investment Centre, agrees, saying increased competition can only lead to a healthier industry, which in turn benefits consumers.

“This industry is growing at a rate of knots, so as long as the broker industry is managed fairly along with the internal banking channels then it’s all fair game with whatever incentives are on offer,” says Davis.

The broker market continues to go from strength to strength, says Sale, and the fact that many of these incentives are also offered through the broker channel is a reflection of this.

“There will be some lenders out there that will keep on giving incentives to try and gain or break growth pattern that the broker market has had and I don’t think it’s going to work for them because the third party industry was built on going to a professional to see what options are out there.

“Even if those incentives are there the consumer is going to go back to the broker because if one bank is offering an incentive there will be others out there, so they’re going to go to the broker and say ‘You tell me what’s going on’. That’s the way it’s heading.”

Sale previously warned about the growing number of lenders offering incentives to brokers based on volume and the potential to damage broker reputations that could result from this, and she says these incentives are still very much in play in the industry. Furthermore, lenders are increasingly using commission-based incentives to attract broker business.

“The lenders are now starting to play around with commissions again - that’s what we’re seeing… It started off with one or two lenders and now it’s starting to feed through to four or five. I can see the whole industry doing a 360. I can see commissions for writers on the way up purely because of the fact that the branches are losing market share big time.”

Sale is optimistic that brokers will reach 50% market share in the near future, and says the interest from lenders in broker channel acquisitions is a further testament to its growing influence.

“I just think you’ve got to ask the question ‘How strong is the third party market?’ The very fact that banks are so eager to buy a share or all of some aggregators tells the story.” 

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