Curbing their reliance on mortgage brokers could allow Australian banks to boost their net interest margins and profitability, S&P Global Ratings argue in a report on the sector.
“Banks are heavily investing in their proprietary channels to regain ground from brokers [and] Australian mortgage brokers may be on notice” S&P said.
“It's cheaper for banks to generate new business through in-house channels. In our view, almost every bank in Australia is looking for ways to attract more customers through proprietary channels, avoiding paying commissions to brokers.”
Over the past three years, even the largest Australian banks have struggled at times to write new mortgage business with sufficient returns to cover their cost of capital S&P said.
Pumping up the proprietary share of home loan origination comes with a qualifier, however, S&P point out.
“If banks want to jump the middleman, customer behaviour will need to shift dramatically.
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“We believe pricing transparency is key.
“Most borrowers prefer brokers because they simplify the loan application and approval processes. They also have a clearer view of actual market pricing than what banks advertise [but] signs of rebellion are emerging.
“Most Australian banks now see sales channels differently.
“Some Australian banks are also implementing differential pricing between their third-party and proprietary channels. But doing this sustainably can become difficult.
“While some push in and out of different channels over time, supply-demand dynamics ultimately prevail. Brokers are so well embedded in the mortgage market that if a bank's pricing isn't competitive, brokers are unlikely to direct business their way.”