Third party customers behind greater mortgage risk

by Miklos Bolza16 Mar 2017
A new industry report has suggested a larger proportion of borrowers sourcing loans through the third party channel are more susceptible to interest rate changes than those opting to go direct.

Speaking at the release of J.P. Morgan’s Australian Mortgage Industry Report – Volume 24 in Sydney yesterday (15 March), Martin North, principal of Digital Finance Analytics who helped compile and analyse statistics from 52,000 households, said that broker clients had a higher intrinsic rate sensitivity than those going via the branch.

“You could argue that in a few different ways. Perhaps it’s the type of individual who goes by a broker instead of going direct. Perhaps a broker’s able to find a bigger loan relative to the income compared with what a lender might do. All sorts of things are in there.”

However, he stressed that these findings did not suggest that brokers were less responsible than banks. Rather, they highlighted the different mix of customer behaviour and customer types that go to brokers versus those who go to the branch.

“One of the critical lenses that we look at is … whether people are effectively soloists – meaning that they want the lowest price they can get – or whether they’re delegators – meaning they are more worried about customer experience and the whole package rather than the price.”

Because price is more important for clients who opt for a broker, this means those individuals have an urge to find the best deal through the third party, he said.

“Secondly, brokers have the ability to look across the market, across multiple lenders and they know in their experience where the best deals may be for that particular type of borrower at that particular point in time.”

Finally, North noted that multiple other factors have also come into play within these results. The type of loan, geographical area and sociodemographic trends also create a higher risk footprint in loans originated through the third party channel, he said.

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