Commonwealth Bank’s new 10 minute mortgages are a further step in the digitisation of home loans that increases pressure on mortgage broker’s $4.1 billion annual fee pool, as the bank attempts to recover control over its business.
Mortgage brokers are primarily one- or two-person businesses that now control 67% of all home loan initiations, up from 47.3% in 2013.
This increase has shown the big banks have lost control over their most valuable product as customers choose home loans based more on price.
The Commonwealth Bank (CBA) move this week differentiates the bank in an increasingly commoditised market.
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CBA is the only one of the big four that initiates more than 50% of its home loans, with its share totalling 54% at last count.
The new ‘Unloan’ product, unveiled by chief Matt Comyn this week and housed under a wholly-owned subsidiary of CBA, is part of the CBA defence of its $450 billion loan book against fintechs, and in the process gives the bank more control over its business.
Mortgage and Finance Association boss Mike Felton acknowledges the competitive impact but says “we see digital as more of an opportunity than a threat”.
The big aggregators like REA’s Mortgage Choice and AFG have already advanced down the digital path and, as Felton notes, “mortgages are the biggest financial decisions many people take and they are keen to have someone to talk with and help them”.
The new Unloan product will begin with loan refinancing but will be expanded to new loans, which at first helps people with simple finances, such as pay-as-you-earn tax income earners and those with a track record with the bank to show their spending history.
Barrenjoey analyst John Mott welcomed the move, which will tend to keep more customers at the bank but in the process reduce margins on existing loans.
However, it’s not all upside for CBA, which earns an average 40 basis points more on its so called back book, or existing loans, compared with new loans.
By way of example, as variable mortgage rates increase from around 2.3% to 4.3% over the next two years, new customers will get a discount while old customers are slugged more.
Existing customers get better rates by threatening to leave unless their mortgage rate is cut.
CBA is attempting to stop customers swapping banks to chase better deals with a loyalty bonus of 0.01% a year and the new digital process makes it easier to refinance a loan.
The new product is at this stage only aimed at more simple loans but in time will be expanded increasing pressure on rivals and aiming to regain control over its most valuable product.
But Felton stresses: “The mortgage broker value proposition has always been based on experience, choice and convenience but since 1 January 2021, consumer have also benefited from a Best Interests Duty.”
“This has provided yet another compelling reason to utilise the services of a mortgage broker and one that has driven an increase in consumer trust and confidence.”