‘Brokers make mortgage markets work better’: Deloitte

Commissioned by the Mortgage Broking Industry Group (MBIG)*, the report comes off the back of increasing scrutiny of the sector (following on from ASIC’s review of broker remuneration, the Productivity Commission’s focus on broking in its review of competition in the Australian financial system, and the financial services royal commission).

The DAE report aims to provide an “up-to-date body of information” about the industry “for the purpose of informing policymakers and the broader community about the role mortgage brokers play in the mortgage market and the economic contribution of the mortgage broking industry in Australia”.

The 47-page report, which reportedly took six months to undertake, is broken into four parts:

• the dimensions and history of the mortgage broking industry;
• the value that the mortgage broking industry has provided to the broader economy;
• the outcomes and benefits mortgage brokers provide to consumers; and
• the value proposition mortgage brokers provide to lenders.

Pulling on data from a range of sources, including the Mortgage & Finance Association of Australia (MFAA), ASIC, the ABS and stories from The Adviser, the report also reveals new findings collected from a nationally representative survey of 1,635 mortgage brokers (both independent and those working in a group) and a focus group workshop with mortgage brokers, and consultations with industry participants (such as National Australia Bank, Heritage Bank, Liberty Financial, AFG, Connective and Pink Finance).

Key findings of the report

New findings from DAE’s survey include:

• Brokers that are sole traders earn an average income (after costs and before tax) of $86,417.
• A broker business with more than one broker reported average earnings (before tax) of $119,838.
• 73 per cent of brokers working in mortgage businesses work full-time.
• 90 per cent of sole trader brokers work full-time.
• 23 per cent of broker customers are first home buyers.
• More than half (57.3 per cent) of broker clients are residential owner-occupiers.
• An average mortgage broker has 13.8 years’ industry experience.
• 70 per cent of a broker’s business comes from existing customers (either directly or indirectly).
• The mortgage broking industry supported 27,144 full-time equivalent jobs in 2016–17.
• There are approximately 7,115 people employed in supporting roles in mortgage broking businesses.
• 70 per cent of brokers are credit representatives (and the remainder hold their own ACL).
• 64 per cent of brokers have education and training above their minimum entry qualifications (Certificate IV in Finance & Mortgage Broking).
• The mortgage broking industry contributes $2.9 billion to the Australian economy each year.

Other findings included the confirmation that lodging loan applications and managing the process to settlement are the most time-intensive tasks of a broker (just 12 per cent of time is spent post settlement), while it also revealed that the average broker has access to 34 different lenders and uses an average of 10.

The report also confirmed that “mortgage brokers sell more loans than lenders’ own distribution channels (e.g. through branches, mobile lenders and over the telephone)”, noting stats from the MFAA which showed that brokers’ share of new residential home loan settlements reached 55.7 per cent by value in the September 2017 quarter.

Other insights included that mortgage brokers drive more competitive mortgage pricing, provide valuable services and offer greater choice for consumers.

The report reads: “Overall, mortgage brokers make mortgage markets work better. They are intermediaries that provide consumers with information about the mortgage products available and the process to follow in applying for a mortgage.

“Mortgage brokers also provide lenders with an additional channel to arrange loans. Mortgage brokers increase choice and competition between lenders, leading to better service levels and competitive mortgage pricing. Mortgage broking is also an industry in its own right, providing direct employment opportunities and supporting employment in other industries…

“A continually improving mortgage broking sector will be good for consumers, lenders and the economy. Along with changing technology, consumer preferences and broader finance industry changes, regulation and self-regulation/co-regulation will shape the future of an industry that has evolved considerably over a number of decades since its emergence in Australia.”

“Devising a new fact base to feed into the public debate”

Speaking to The Adviser, Deloitte Access Economics director Mike Thomas said: “This has been a very large information gathering exercise that has taken well over six months. Putting a survey out to field, getting the data back, processing all the data... going through the written report, updating the data as new data came to hand and then getting it to the final stage really [meant it] was an extensive body of work.”

He added: “We were asked to devise a new fact base to feed into the public debate that has been going on around the industry (and about the financial services sector in general) lately. There has been a lot of scrutiny, so you need a good fact base to make sure that that debate is carried out in an informed manner but also there is an evidence base for policymakers.

“If policymakers and regulators are going to make decision[s] that affect the industry, they need a sound evidence base. So, we hope that what we’ve put together helps to meet both of those aims; informing the public debate and providing that good evidence base for going forward.”

Speaking of the report, the CEO of the Mortgage & Finance Association of Australia, Mike Felton, told The Adviser the he believed there were four key takeaways from the report: the fact that brokers have, on average, 13.8 years of experience; the fact that nearly two-thirds have higher than required education levels; that brokers have access to (on average) 34 lenders but use 10; and the new finding that the average sole operator earns around $86,400.

Mr Felton told The Adviser: “While the report shows so many positives about the critical role that brokers play in driving competition, choice and service to those that need it most, it also shows the vulnerability that a broker only earns $86,400 and how vulnerable they are to any adjustments that might reduce that. That poses risk to choice, competition, interest rates and the provision of these services.”

He added that he hoped the report would “assist with addressing the shortfall in knowledge of what brokers do, the role they play and the value that they produce”.

In addition, Finance Brokers Association of Australia (FBAA) executive director Peter White said: “Customer satisfaction is critical for our industry. With so much referral and return business, brokers know they must do everything they can to help their customers secure finance that works for them. And it’s clear that this is happening — more than 90 per cent of home buyers are happy with their mortgage broker’s performance.

“Beyond this dedication to serving their customers, mortgage brokers are experienced professionals. The report found the average broker has 13.8 years’ industry experience, which speaks to the quality of service and value that brokers provide their customers.”

Mr White told The Adviser that he hoped the report would provide a “much clearer, succinct understanding of what the industry really looks like”.

The head of the FBAA concluded: “It was intentional that we used Deloitte, a business of great significance, to sit in front this report, because we wanted the independence to truly speak to what the market is like.

“It’s not a report of self-interest, which some [other industry] reports have been. It is a concrete report that can be cited with great confidence given the research quality and the neutrality. We hope it will be a key piece of conversation in political circles, in mortgage circles, in the media and across the economy, going forward.”

Earlier this month, Deloitte released its Australian Mortgage Report 2018, based on a roundtable discussion and survey of some of the biggest decision makers in the mortgage industry, which found that the popularity of mortgage brokers among the public continues to defy media criticism and ongoing scrutiny.

The MFAA has also recently launched a major marketing campaign across the country to promote the value of brokers to the general public, with the FBAA also taking steps to hit out at some of the misreporting and “myths” about broking in the mainstream media.

*The Mortgage Broking Industry Group (MBIG) comprises AFG, Astute Financial, Aussie, Choice Aggregation Services, Connective, FAST, Finance Brokers Association of Australia, Loan Market, Mortgage & Finance Association of Australia, Mortgage Choice, National Mortgage Brokers, PLAN Australia and Smartline.

[Related: Broking triumphs over scrutiny and media criticism: Deloitte]