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A big four bank has revealed that it would be cheaper if home loan customers came directly to one of its branches than through the broker channel, despite contending that mortgage costs are difficult to measure.
Appearing before the Productivity Commission on Wednesday (28 February), Westpac was grilled on its mortgage origination costs by channel, to which Westpac CFO Peter King said that “it’s hard to break it down to a ‘per mortgage’ cost”.
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However, Mr King still insisted that “[Westpac’s] preference is first-party” as it is more cost-effective, though he acknowledged that roughly 45 per cent of the bank’s annual home loans come through its broker channel.
When it comes to the “proprietary flow of mortgages”, Westpac’s supply-demand decisions are based on the number of home finance managers that are required at a particular branch to meet regional demand, according to Mr King.
“The concept that you can choose to direct the flow I don’t think works, because it’s the customer’s choice about where they go,” the CFO told the PC.
When asked whether the bank takes into account “drawing more customers that would have gone to brokers into the branch” as part of its cost optimisation measures, Mr King said that “[Westpac] would love to do that, but it’s not always the case that we can do it”.
“How the customer approaches buying a mortgage is very important and a lot of customers will choose to go through brokers. That’s a feature of the market,” the CFO said.
Jason Back, managing director at the Australian Lending & Investment Centre, told The Adviser that third-party channels are actually more cost-effective.
“As an ex-banker, the overhead that goes into paying staff (their super and salaries) and branch costs, they’re the same. In fact, the third-party is actually cheaper than running first-party. But that gets lost in the argument,” Mr Back said. “We’re a fairly easy target.”
Connective director Mark Haron previously told The Adviser that, by managing home loan applications, brokers actually reduce the workload for banks.
“[Brokers are doing] the work that the banks would have to do themselves, so it’s only fair that the brokers get remunerated by the banks,” the Connective director explained.
Meanwhile, Trevor Ryan from Aussie Home Loans Coolum Beach noted that “the banks are pushing more and more work onto the broker”.
“What’s basically happening is, as the industry systemises, it’s actually getting harder for the broker, and the average broker is probably going to be behind the game. You’re going from your proprietary systems like, say, our Aussie Toolbox through to online [applications] and then different banks wanting things in different formats,” Mr Ryan told The Adviser.
“Maybe it’s different for [metro brokers], but the average regional broker is putting a lot more hours in trying to get loan applications in the [right] format to be able to submit them.”
[Related: Industry to defend trail commissions]
