Surfing For A Mortgage Deal
The Sunday Age
Sunday September 17, 2000
When Aussie Home Loans chief John Symond stomped his way into the mortgage market in the early '90s, it set a new game plan for the home-loan market.
It spawned the surge in mortgage originators and burst open the gates in the mortgage-broker market. Brokers who had been quietly doing business deals in the '80s now sign up a quarter of the new loans each year.
And Mortgage Industry Association national president Vicky Edema believes brokers will capture half the market in the next three to five years.
With a new national code of practice and an ombudsman scheme to deal with complaints, the industry is keen to promote its squeaky-clean image. Ms Edema says it's standard practice to make clients aware of commission rates and trailer payments up front.
She doesn't believe commissions affect brokers' recommendations. ``Instead of putting heaps of money into advertising, they (the lending institution) take the scatter-gun approach and take part of the advertising budget and allocate it to commissions, which they only pay on settled business," she says.
Ms Edema says brokers are only truly independent when the borrower is paying the fee and the broker is not receiving a commission.
This blurry area of commission is what Mortgage Solutions principal partner Tim Bolton argues is the problem with the industry.
How can brokers be independent when they receive commissions, even if they are standardised over the products they offer? How does a client know it is not dependent on the volume of product a broker sells?
His company charges clients an initial flat fee for its broker service and it accesses the whole mortgage-finance market.
``We are there to work for the client and we are not there to sell loans. We talk about the type of product in the marketplace so our clients are in a position to make an informed decision on what would be the best loan for them," he says.
Ms Edema says a broker who offers a fee-free service can validly argue he or she is able to offer an extensive range of products that will suit the borrower and that the commission is fairly uniform, ranging from 0.5 to 0.7 per cent of the loan amount.
Broker-support organisations have flourished as brokers strive to stay abreast of market demands. It is no longer a case of meeting the bank manager in a cramped wood veneer and glass-panelled room when applying for a loan.
Applicants now surf the Net for up-to-date options. Bundled finance packages are the latest marketing ploy, where spin-offs include cheaper deals on other bank accounts.
With new players entering the mortgage-finance industry daily, finding a chink in the market is essential.
Fledgling Internet mortgage broker iSay.com.au has combined the Net with the mortgage-broker market by providing ongoing surveillance of a mortgage's financial competitiveness.
Its chief executive officer, Martin Collings, says 62 per cent of 1000 iSay customers showed they could save money by refinancing their mortgage.
Mr Collings says the survey revealed an average saving of $17,000 over the life of each person's loan. The cost of changing a variable or a line of credit was generally a few hundred dollars.
To his knowledge the service is the first of its type offered to the public.
``The iSay Trigger Point allows anyone to input the details of their current mortgage into our database. As soon as a mortgage becomes uncompetitive relative to the rest of the market, an email is automatically generated telling the person how much they could save by refinancing."
Mr Collings says that to ensure credibility, commissions have to be uniform.
``This is the only way for buyers to think we are 100 per cent impartial."
Mr Collings started the Sydney-based company in February after working as a Commonwealth Bank Internet executive. He wanted to combine the phenomenal growth of the mortgage-broker market with the power of the Internet.
``It made us realise the potential for a transparent and impartial mortgage-broking alternative."
He says that, according to Australian Bureau of Statistics figures, between 15 and 18 per cent of mortgages are initiated by brokers compared with 34 per cent in the United States last year and 29 per cent in the year to date in the United Kingdom.
``The question becomes why are Australians more complacent?"
Mr Collings believes people's first experience with obtaining a mortgage can be a difficult one.
He says the iSay service eliminates the hard-sell buying technique from the mortgage process and he believes people will move towards the Internet.
``There are always people who prefer a more personalised approach, but as people realise it costs less to buy over the Internet more people will embrace it."
While only 1 per cent or 2 per cent of loans are taken out on the Net, Mr Collings says the numbers are starting to move and he believed the trajectory would be the same as the rapid growth in mortgage broking.
He says Deutsche Bank research estimates that 23 per cent of mortgages in the US will be sold on the Internet by 2003. Last year Alex Moulieris filled a niche in the broker market when he created the Professional Lenders Association Network Australia, which has 188 members. Mr Moulieris says many brokers are in danger of being left behind as banks increase minimum sales levels, products become more complex and customer expectations continue to grow.
He says independent mortgage brokers now account for between 20 per cent to 30 per cent of residential mortgages in Australia, compared with 60 per cent in the US. While his statistics are out of kilter with other commentators, Mr Moulieris says what they do show is that mortgage broking is growing and no one has a real handle on it. He predicts that brokers who use one mortgage originator will struggle as they become less relevant.
The highly competitive market has resulted in banks, finance brokers and mortgage originators being creative in their approach to courting loan applicants.
Six months ago the Bank of Melbourne set up sales representatives at the coalface of its business, in leading Melbourne real-estate agents' offices. The bank's Victorian personal sales manager, Gary Walmsley, says both the bank and agents benefit. The bank writes close to one-in-three loans in Victoria and Mr Walmsley says it has gone all out to capture the market.
``It's certainly very competitive and unless we offer different channels of business you can't stay on top of what is happening," he says.
The director of banking finance at leading independent financial services research group CANNEX, Cassandra Williams, acknowledges applying for loans in this competitive market is a daunting task.
She advises people to ensure their broker offers a wide range of products and says it is crucial to ensure their information is independent. People need to understand what commissions their broker receives and whether they are getting their data from a reliable source. While the market is overwhelming, Ms Williams advises people to do basic research to understand the market before going to a broker.
The Internet is a leading source of information in searching for the cheapest product available.
Ms Williams says a mortgage is a critical financial decision and there is always going to be the need for personal contact, but as people become more comfortable with the process, second and third mortgages are more likely to be carried out on the Net.
The Net breaks down geographical boundaries to loans, making the market more competitive.
A large growth area is financial packages that offer cross-product selling . ``Bundling your package may give you a better deal with other accounts," she says.
© 2000 The Sunday Age