Mortgage brokers are being pushed towards consolidation or specialisation as bank moves to cut commissions and withdraw products put further pressure on the industry.
All the major banks have announced tighter commission structures for brokers this year, and now BankWest has moved to withdraw its popular Rate Tracker product from the broker channel.
According to The Australian, in the future BankWest will only provide the popular Rate Tracker product through its loan network in an attempt to bypass the mortgage broker middle-man.
Industry figures today played down the impact of the BankWest decision, pointing out that it is just one among a suite of products mortgage brokers offer to clients.
But it is symptomatic of the tougher environment mortgage brokers are now doing business in. Phil Naylor, chief executive of peak industry body the Mortgage and Finance Association of Australia, says the pressures are changing the sector.
“Revenues have dropped, but those that are serious in the market are looking to diversify with add-ons such as commercial lending, providing insurance and so forth,” he says. “While some people are going to be hurt, the stronger will survive.”
Naylor says he is unsure whether the recent squeeze on products and commissions has accelerated change in the sector, but says that when conditions improve we are likely to see a stronger sector comprised of a few big firms and fewer, smaller boutique operators.
For brokers without economies of scale or a strong niche offering, that could mean tough times ahead.
“Everyone is suffering some pain, but the best will find a way through. The bigger groups have the advantage of a wider range of offerings and infrastructure, although they are not immune. But there will be consolidations among the mid-sized groups and we will find some very large groups and some quite strong independent operators at the end,” Naylor says.
One operation that falls into the smaller, more specialised category is Victorian broker Mortgage Fair. Strong links to the Real Estate Institute of Victoria and the real estate profession have helped the firm perform strongly despite the tough times, chief executive Colin Sacs says.
“It is very tough at the moment; the banks have cut the margins they pay mortgage brokers and that means good brokers have to do more business at those margins to be successful,” Sacs says.
He says his firm has been able to attract more good brokers as it has established itself and the sector has consolidated.
“It is a natural economic phenomenon in these times of change that there is consolidation, and people reassess if they are in the right business or part of the sector. You get consolidation, people joining forces, trying to generate economies of scale or be smart, and that means there will be winners and losers,” Sacs says.
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