A new report, ‘The Value of Mortgage Broking’, released this July by Deloitte Access Economics, has found that mortgage brokers increase competition and choice for customers, which brings a swag of benefits to the consumer, and the larger economy.
Mortgage brokers began emerging in Australia in the mid-1980s, and now 55.7 per cent of loans are arranged by brokers.
“Mortgage brokers arranged an estimated $197 billion of new residential home loans in Australia for the year to September 2017,” states the report. As you’d imagine, this contributes significantly to the Australian economy. $2.9 billion is the estimated figure.
There’s no doubt that more people are using mortgage brokers now than ever before. But why?
Brokers increase competition
More brokers in the market works in the consumer’s favour because there is more competition, and therefore better financial outcomes for customers.
A mortgage broker is interested in matching the customer with the most appropriate loan product, rather than working on behalf of a specific bank. This means a broker looks at large cross-section of loan products on the market. The broker will assess competitive rates, and suitable terms for the customer. It’s therefore in the lenders’ interest to provide competitive rates and a greater range of products.
While big banks still offer the majority of residential home loans, smaller lenders and foreign lenders are also competitive in the market.
“Around 28 per cent of home loans arranged by mortgage brokers in the September quarter 2017 were for lenders other than the four major banks and their affiliates,” states the Deloitte report. The following chart shows the percentage of lending arranged by brokers, by lender segment.
Assistant Treasurer at the time, Kelly O’Dwyer, said: “The government recognises that mortgage brokers play an important role with more than half of all home loans originated by brokers and 26 per cent of these loans written to non-major lenders, compared to only 12 per cent of loans written outside the broker channel.”
Brokers increase choice
The Deloitte report found that one of the advantages of using a mortgage broker was that customers were able to choose products that suited their specific needs. Whether customers are regional, self-employed, permanently employed, or paying off a loan with a family member, a broker can assess the market, and find the most competitive option.
Consumers have choices about whom to borrow from, what type of product to use, and how the repayment schedule will play out. More choice can even lead to consumer savings.
A study by Damen & Buyst (2016) in Europe showed that “a borrower who shops for five mortgage offers is able to save, on average, at least €7,078 over the life of the mortgage.”
Brokers help increase consumer confidence
In addition, the Deloitte report found that sitting down face-to-face with a broker helps customers improve financial literacy and make positive financial decisions. It also helps customers better understand their obligations.
With regulations tightening in the financial sector due to increased scrutiny from regulators, it’s more important than ever for consumers to get help navigating the minefield of lender policy and loan product changes.
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