Reducing channel conflict could lead to better outcomes for lenders as well as mortgage brokers and homebuyers, according to the MFAA.
The peak industry body has recently stepped up calls to reduce lengthy delays in discharge processes for customers looking to switch lenders by advocating for time limits and standardised forms.
MFAA CEO Anja Pannek (pictured above left) said that this was especially important “now more than ever” as borrowers rolled off low fixed rate loans into a vastly different environment.
While the need for easy switching is apparent for brokers and their customers, the appeal for lenders to retain clients is clearly tempting amid the intermediary market swallowing up direct market share in recent years.
But Pannek said reducing channel conflict could “absolutely” help lenders, with the association calling this out in its feedback to the Home Loan Pricing Inquiry in 2019 and which is reiterated in a submission to the ACCC in May.
“Taking friction out of the customer experience when customers go to discharge their loans would not only make it easier for borrowers to switch but will serve to increase competition within the lending market,” said Pannek.
The case for lenders
Channel conflict in the mortgage broking industry generally arises when a lender provides better terms or conditions to clients who choose to engage directly instead of going through their broker.
This situation can create a conflict of interest between the lender and the broker, as it undermines the broker’s role as an intermediary and diminishes their value proposition to clients.
Steven Zahos (pictured above right), director of Sydney-based brokerage ZT Finance, said he had experienced this conflict first hand.
“From the broker’s side, it’s incredibly frustrating because all we are looking to do is get the best product for our clients and it feels like some lenders are purposely delaying or impeding that,” Zahos said.
However, Zahos admitted that it was a “double-edged sword” for lenders, who were only trying to compete.
The MFAA Industry Intelligence Service 15th Edition report, released in March, showed a record number of brokers (over 19,000) have entered the industry – a 5.2% increase year on year.
The report also revealed that the mortgage broker market share for residential home loans reached 71.7% in the September 2022 quarter, a record high and the first time the measure exceeded 70% since it has been tracked. The latest figures, which cover the December quarter, show that share has pared back slightly to 69.3%.
Even so, it’s a far cry away from the market share which hovered around 57% as recently as three years ago.
“Lenders need to bring on new business and entice new clientele to come in, but they also want to retain existing clients because the last thing they would want is a revolving door of customers that switch,” Zahos said.
“This is where the retention side of things becomes very crafty as they delay things and don’t give their best offer straight up. But from a lender’s perspective, if they offered their final rate upfront, this would assist the broker to help actually retain them if they are best solution for the client.”
The key to retention
In 2020, the ACCC released its final report of the Home Loan Price Inquiry, which aimed to identify the challenges borrowers face when switching lenders and provided four recommendations to address the issue.
The report outlined that making the process easier allowed borrowers to update their home loan over time – ultimately providing a better experience for borrowers across both channels.
Secondly, the report said that the demand-side pressure generated through switching, or the credible threat of switching, “incentivises lenders to continually innovate”.
Basically, said Zahos if lenders provided “better products and lower prices”, borrowers would have “less incentive to switch”.
In its submission to the ACCC this year, the MFAA put it like this: “It is important for reasons of consumer protection, preserving market integrity and competition that the consumer experience is consistent regardless of whether a consumer is dealing directly with a lender or dealing with a broker,” the MFAA said.
“It is equally important for a competitive and efficient home lending sector, that friction for a borrower, in both obtaining a home loan and switching or refinancing their home loan, is minimised.”
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