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Mortgage brokers are “a very effective competition tool against the banks” and are key to “democratising finance”, according to AFG chairman and former ASIC chair Greg Medcraft.
The chairman of aggregation group Australian Finance Group (AFG), Greg Medcraft, has said he believes brokers are, and have always been, a driving force in providing competition in the finance and mortgage market.
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Speaking on the Mortgage and Finance Leader podcast, the former chairman of the Australian Securities and Investments Commission (ASIC) said he had always been supportive of mortgage broking because “they’re the key to democratising finance”.
He elaborated: “They [brokers] really are a very effective competition tool against the banks, especially now they have a best interest[s] duty to their clients (and I think, in my view, most of them always probably had a best interest[s] duty, it just wasn’t embedded in the law).
“First of all, I think they are a really important part of competition in this country … we’re still seeing a huge flocking of borrowers to the majors [banks], whether it’s because of their price differential with the fixed rate cliff that we’re currently ploughing through and everyone refinancing, or whether it’s because of the cashbacks or just because of brand recognition.
“But this issue of back book pricing (where you offer people a nice discount to come in and then you rely on inertia for them to remain and sit there) … That’s where brokers do make a difference.
“Our [AFG] brokers keep an eye on those people. They want to keep their customers, right? So the beauty of brokers is (because they have a trail commission and the fact that they essentially just can’t churn the mortgage because they’ll have an issue with the upfront fee), they’re incentivised to make sure that they keep the customer and go back to them and say: ‘We just negotiated a lower rate for you’.
“That’s the beauty of the broker system.”
Mr Medcraft revealed he had previously used an AFG broker (even before joining the board of AFG in 2021) who was able to lower his interest rate from the bank by 100 bps.
The AFG chairman added that he believed because of the value that brokers provide consumers, Australia would likely follow the United Kingdom and see broker market share hit 80 per cent.
“I think that number is going to keep on going up. Do you know why? Because it’s trusted, and they’ve got the right incentives,” Mr Medcraft said.
“I think the banks have obviously accepted that the broker channel [is strong] and people still want that service. That they’re somebody they can trust.”
Reflecting on his tenure as AFG chairman – a position he took up in earlier this year – Mr Medcraft said he was attracted to the aggregation brand as it “started life as a disruptor”.
“We came in as one of the many into origination or manufacturing of mortgages. We are a disruptor. And so I guess I've actually found my tribe with AFG, which of course has AFG Securities now as well, with the wholesale fund, too, so looking at actually building out its lending book too,” Mr Medcraft said.
“We’re actually trying to make sure Australians get a fairer deal on their mortgages. That’s actually, our motto … a fairer financial future for all Australians. You couldn’t ask for a better objective than that.”
You can listen to the full interview with Greg Medcraft on the Mortgage and Finance Leader podcast below:
[Related: AFG chair to step down from board]
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