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A new, cheaper refinance offering is set to be launched by the major bank that is only available directly to consumers.
The Commonwealth Bank of Australia (CBA) is set to roll out a new, digital home loan offering for new-to-bank mortgagors that is only available online.
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The product – announced last year and expected to be released later this month according to communications sent out from the bank to the broker channel seen by The Adviser – will reportedly enable borrowers who are externally refinancing (with a loan-to-value ratio of under 80 per cent) to access a cheaper rate than they can access from either from the broker channel or through proprietary bank staff.
It is believed the rate will be 6.15 per cent.
While the banking group already has a digital-only direct-to-consumer division that bypasses brokers and its bank branch Unloan, the new CBA offering being released this week is believed to be the major bank’s first ‘yellow-branded’ mortgage offering that is only available to consumers directly.
As such, the new offer will not only directly compete with the broker and proprietary channels, but also with its ‘low-cost’ mortgage brand Unloan (which has been in market since May 2022).
The digital product is not expected to be made available to existing CBA home loan customers.
CBA’s repositioning to regain market share and improve margin
The move to launch a new direct-to-consumer offering under the CBA brand comes as the major bank continues its push to boost its mortgage portfolio and home loan margins.
Australia’s largest lender has, for the past year, been focusing on proprietary distribution, with the banking group saying that broker loans offer lower margins.
CBA chief financial officer Alan Docherty said during a market briefing webcast in February 2024 that the major bank had made a choice to “not participate in unprofitable mortgage lending”.
Its half-year results (for the six months to December 2023) said that its book had been hard hit by its move not to rate match the market, with a 15.3 per cent drop year on year in new CBA mortgages funded, down by approximately $10 billion (from $65 billion in the half year ended 31 December 2022 to $55 billion in December 2023).
Moreover, its retail banking margins dropped by 25 bps in 1H24 when compared to 2H23 to 254 bps, which it said was due to “increased competition and unfavourable deposit mix”.
CBA CEO Matt Comyn said at the time: “Clearly, it has been a very price-sensitive and competitive market, which is what you expect in a very high refinance market.
“We are here to serve our customers. We can make, and we have made, very deliberate choices about where to compete and how best to.
“We have sought to optimise as best we can for some of those pricing decisions. But ultimately, we are in that competitive market and we have certainly stepped closer to the market.”
A more recent trading update from the bank (released earlier this month, for the quarter ended 31 March 2024) showed that home lending grew by 3.1 per cent on the previous quarter, up $4.2 billion. CBA’s total mortgage book increased by $1.9 billion to $549 billion in March, figures from the prudential regulator said.
Brokers turning away from CBA
Given CBA’s focus on its proprietary and digital channels, the bank has seen a marked drop in its broker-introduced flows.
CBA broker flows fell to 33 per cent in December, the lowest proportion in recent years, with many brokers voicing their frustration at being excluded from the bank’s best loan offerings.
Speaking to The Adviser earlier this year, Brenton Moyle, lending manager at FinSec Finance, said: “I feel there are a number of reasons that have caused CBA broker flows to drop. The bank continues to make public comments around their strategy to focus on their proprietary channels; they’ve introduced their own direct-to-customer (and lower cost) online loan, which is not available to brokers; and I still see channel conflict, just to name a few!
“Current interest rates on broker-available products don’t generate any excitement either.”
Moyle said that he had also experienced channel conflict from the lender when trying to refinance one of his clients to another lender. “Their retention team undercut the ‘best rate’ that was advised to me after escalation via their pricing tool, so it’s difficult to trust that CBA will always ‘do the right thing’ once they have a broker-introduced loan on their books,” he said.
Similarly, Andrew Strachan, broker at Blue Ribbon Home Loans, told The Adviser that he believed there were three main issues impacting CBA broker flows: channel conflict (and its candid preference for direct channel loans), “only offering discounted rates after you approach them”; and because fewer brokers are former bank employees/have prior loyalty to the lender.
Strachan said if CBA could reduce channel conflict and “redefine” clawback to include a ‘no fault’ clause, then he believed its broker flows would reverse.
*The Adviser reached out to CBA for comment about why they were launching the new direct-to-consumer refinance product but had not received a response at the time of publication.
[Related: Broking industry outraged by Unloan introducer program]
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