Retention strategy critical as loan churn increases

Repricing top of mind for consumers and banks

Retention strategy critical as loan churn increases



Brokers who do not have a customer engagement and retention strategy in place risk having their existing loan book leak to other brokers or direct channels, according to Sherlok founder and CEO Adam Grocke (pictured above), as customers look for better rates and bank competition heats up.

While many brokers become successful by focusing on winning new business and letting the existing loan book “take care of itself”, Grocke said there had now been a “big shift” in the mortgage broking industry towards realising that the existing book of clients won’t necessarily be there forever.

According to recent Sherlok data, which supports brokers handling $70 billion in mortgages, the average length of a home loan is now just 37 months, or just over three years, which means brokers’ trail books could evaporate over a shorter time without a customer retention strategy.

Grocke said churn is predicted to double on what it has historically been in the current market, and  brokers stand to lose a significant amount in upfront and trail commissions from servicing existing customers over the next 12 months if they do not proactively engage with them.

“If you don’t have an engagement and retention strategy for existing customers, and you are not repricing them on competitive rates or refinancing to a different lender, well if you are not going to do it, someone else will be talking to your clients,” he said. “If you are not talking to them, someone else is.”

The rise and rise of repricing

Sherlok’s technology offers an automated client retention option for brokers. It uses AI to monitor existing customers’ home loan rates and automatically reprice them with their current lender, or alternatively identify and deliver refinancing opportunities for brokers to action.

Grocke said he has seen a shift in awareness across the broker industry towards looking at repricing loans with existing lenders first before jumping into a refinance deal, because it drives great customer outcomes as well as being a strong retention play for mortgage brokers.

Lenders are also responding to repricing pressure coming from customers and brokers, Grocke said, with some lenders offering tools for brokers to make repricing easier, and lenders being more open to repricing their back books rather than just offering discounts to new customers.

“Lenders are asking what the net result is, for example, with the fixed rate cliff that’s coming. Their appetite for repricing has increased. There are more aggressive repricing outcomes; they are more willing to reprice and give customers significant discounts for them to stay,” he said.

Sherlok data published in the Australian Financial Review shows that although brokers may have in the past only received an average reduction of about 0.65 percentage points when approaching a major bank for a discount, more recently, the discounting available had expanded to one percentage point.

Grocke said that this had even progressed to the point where some lenders who would never before have repriced their basic packaged home loan products are now open to pricing them to match the market, in an effort to shore up their back book of business.

Refinancing spike raises clawback questions

With the life of mortgage loans facing downward pressure and a flurry of cashback offers in the market as banks seek to win new customers from their competitors, Grocke has also questioned the existence of clawbacks, which are hitting brokers acting in their customers’ best interests.

“Clawbacks have got to go, to be honest – I think it is detrimental to the broking industry,” Grocke said. “The broker is doing the work, doing all the right things, and doing them in the customer’s best interest, and all that hard work they did for the loan they wear a hard cost for.”

Grocke said that brokers are now obliged to act in their customers’ best interests when a customer comes looking to take advantage of a bank cashback offer, which, provided all the other loan requirements are met, will naturally be a better option for that customer.

Some savvy customers doing the sums were actively pursuing refinancing offers on the market, Grocke said, because even if they’ve put in a few hours work into getting their loan shifted to another bank, they were getting a good return on their time and getting thousands in cash back.

While this may be a good outcome for the customer and the bank, Grocke said the broker is left out of pocket after the refinance, even if a previous deal was only written 6 months before.

“Typically speaking there is only a minimal profit from an upfront commission, and what we are seeing is that being clawed back, when it is the lenders who are incentivising that through cashback offers and consumers saying well why wouldn’t I move for an extra $5,000 dollars?” he said.

“At the end of the day a customer who is incentivised by a significant cashback offer will move no matter what a broker has to say.”

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