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Brokers are driving competition in the mortgages sector and changing the composition of Australia’s loan books compared with historical trends, according to Lendi Group.
David Hyman, the CEO of the recently merged Lendi Group, appeared before the House of Representatives standing committee on economics for its review of Australia’s four major banks and other financial institutions yesterday (29 July), where he was asked about the level of competition in the Australian financial market.
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Liberal MP and member for Mackellar Jason Falinski cited an observation made in the banking royal commission that due to regulation, the Australian financial market has become “quite ossified”, and that there is the “appearance of competition without there actually being competition”, and asked for Mr Hyman’s view on this position.
Commenting specifically on the mortgages sector, Mr Hyman stated that the the big four banks are a “very competitive” section of the market, with Macquarie Bank also “giving them a serious run for their money in terms of growth and market share growth”.
Mr Hyman also pointed out that regional mutual lenders have rebranded to banks, which has provided them with an opportunity to target a customer base on a national scale - which has also provided competition.
However, he emphasised that the broker channel was paramount to providing competition and choice to Australian borrowers.
In the mortgage broker channel (where 60 per cent of all home loans are originated), My Hyman said that competition is “alive and well”.
“When we look at the broker space… there’s a number of broker [groups] that publish some of this data externally,” Mr Hyman explained.
“You actually see the makeup of the customer is quite different to if you compare that to APRA’s (Australian Prudential Regulation Authority) view of the historical loan books.
“What it actually tells us, anyway, is that competition - as it relates to the mortgage broker space - is alive and well. It’s actually driving different outcomes in terms of the future state of the nation’s loan book, so to speak, and where that lands vis-à-vis what that’s looked like historically.”
Questioning Mr Hyman on the role of brokers in deciphering complex information in the mortgages process, Mr Falinski referred to the banking royal commission interim report released in 2018 and mentioned that there are over 4,000 mortgage products available in the market “which has created this giant market sludge that can only be penetrated by brokers who work in the sector on a full-time basis”.
Mr Hyman agreed that this was a fair assessment of the role a broker plays, adding that their role is to wade through the complex information and products for the benefit of the client.
“Talking selfishly, from our perspective, one of the drivers for us to build the Lendi platform initially was exactly that reason: it’s complicated, it’s time-consuming, and it’s confusing, and technology allows you to make it easier for customers and brokers through that process,” he said, highlighting that this professional ability to navigate the myriad options available for consumers was a core value proposition of the broking industry.
Slow turnaround times do not exclude lenders
The standing committee also raised the issue of the significant disparity in mortgage approval times between the proprietary channel and the mortgage broker channel.
Deputy chair of the standing committee on economics and Labor MP Dr Andrew Leigh (member for Fenner) asked Mr Hyman if his group would eliminate certain lenders from their panel if “they’re too slow”.
Mr Hyman responded that this would not necessarily result in lenders being completely excluded as a choice for broker clients, but noted that it would weigh into a client’s decision-making process when considering broker recommendations.
He said: “If you’ve got an option to go with two banks with a very, very similar product (for example, fees and features), most of the time that customer is going to go with the bank that’s going to give them the answer quicker.
“So, it really depends on the customer’s circumstances at the end of the day.”
Commenting on the lagging lender turnaround times in general terms, Mr Hyman said that the most significant challenge has been channel conflict, with customers who approach lenders directly experiencing shorter loan approval times compared with the broker channel.
“If you put a customer hat on, in that light, it ultimately means waiting longer for the approval [through the broker channel],” Mr Hyman said.
The latest data from Momentum Intelligence’s Broker Pulse report revealed that brokers had been experiencing marginal improvement in turnaround times during June.
The average time to initial credit decision across all lenders was at an average of 9.2 business days in June 2021, down from 10.3 days in May and 11.5 days in April.
[Related: Lendi lays out post-merger strategy]
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