A snapshot of the broking industry

The latest bi-annual Industry Intelligence Service (IIS) from the Mortgage and Finance Association of Australia (MFAA) covers the six months to September 2019, and really demonstrates the impact of the royal commission’s final report released in February that year.

While the proportion of new residential home loans going through brokers dropped to its lowest share in three years, the number of brokers also offering commercial loans rose to its highest ever presumably as the call to diversify ramped up in the face of losing trail commission.

Other figures in the report include an impressive increase in the number of loans going to ‘other lenders’ and away from the big four. For a more complete snapshot of what the report has shown, continue reading:

The market share of new home loans settled by brokers dropped to 54.9%.

While brokers still hold more than half the market share of all new residential home loan settlements at 54.9%, this amount is 4.2% down from the September 2018 quarter, making it the largest year-on-year decline so far.

According to the report, the size of the drop represents a correction from last year, when tighter credit led to a larger than average increase in broker market share.

Overall, the share of home loans settled by mortgage brokers has grown by 24.8% since the December quarter of 2012.

Major banks continue to lose hold over the market through broker-originated loans.

Continuing a downward trajectory from October – December 2018, the market share of the major banks has dropped to just 42.8% of broker-originated loans.

This has come alongside a 51.2% quarterly increase in the ‘other type of lender’ segment, most notably Macquarie, while non-bank lenders, International Banks, Credit Unions and White Label Lending experienced two quarters of decline.

More mortgage brokers are writing commercial loans.

Throughout the six months to September 2019, the number of mortgage brokers also writing commercial loans increased to a record high of 3,670. This was a 5.43% increase, the first of its kind after 12 months of decline.

Home loan settlements dropped 11.8% within the mortgage broking sector over the past 12 months.

According to the report, brokers settled just over $86B in residential home loans between April and September 2019, which is $11.5B less than recorded during this period last year.

This is the lowest six-month value ever recorded in the report, turning a four-year trend on its head.

“Historically, the value of home loan settlements between the April – September period tends to be higher than the October – March period,” the report says.

“However, the last six months has seen a larger decline than has been observed previously.”

A yearly decline was also noted; the first of its kind since the report started tracking the measure in 2014.

A weakened property market is thought to be a major reason for this drop. In signs of a recovery, however, the second quarter of the period saw an 8.9% rise of settlements above the first quarter.

“With credit policy and lending criteria less stringent and interest rates at an all-time low, access to lending has been made easier to aid stimulus to catalyse a recovery in the housing market.”

When coupled with the drop in broker owned market share, it seems evident that more borrowers have entered into loans directly with lenders rather than through a mortgage broker.

Property prices saw mild increase.

National median dwelling values have risen slightly over the September quarter for the first time after a 12 month period of decline; pointing yet again to the start of a market recovery.

“Historically, sales volumes have tended to decline or moderate between June and August, however unlike previous years, volumes have strengthened and increased in 2019, showing signs that the market is picking up and highlighting a recovery in the home lending industry,” the report says.

The number of new home loan applications has increased for the first time in three years.

While the report shows a 3.42% decline in new applications yearly, the six months to September proved a different story. Numbers were up by 5.58%, making this the first increase since the April – September 2016 reporting period.

“The period-on-period growth was driven by the three larger states with Victoria recording the biggest increase in application volumes, up 6,787 or 9.11% compared to the last six months.”

There is room for more brokers in NSW, ACT and VIC.

The report found that the value of new loans settled exceeds the number of brokers deployed in NSW and the ACT as well as Victoria; indicating there may be opportunity for more brokers to enter the market.

In Qld, WA and SA, however, these trends are reversed, while Tasmania and the Northern Territory seem to have an equal share of loan value and broker deployment.

There are less brokers in the market and the average value of a broker’s loan book has increased.

Declining for the second consecutive six-month period, the broker population has dropped by 2.6% over the past year.

“Within a tough housing market, the reduction in the total broker population is understandable,” the report says.

“The reduction also coincides with the Royal Commission and increased industry scrutiny, which has resulted in an apparent trimming down of inactive, less productive brokers.”

Alongside this decline, there has been an 8.67% yearly increase in the national average value of brokers’ loan books, from $39.11m to $42.5m.

Broker remuneration has declined year-on year but increased over the last six months.

The combined average up-front and trail commission declined by 1.5% to $131,402 in the year to September 2019, however, this amount was up 2% from the previous six months’ figure of $128,709.

The report attributes this increase to strong trail commission results; the average national figure rising 8.7% to $63,752 over the year.

The average national gross up-front remuneration per broker saw a year-on year decrease of 9.45%, from $74,706 to $67,650 – a trend driven by NSW and the ACT as well as Victoria.

The value of commercial lending settled by mortgage brokers has rebounded.

Following a period of decline, the value of commercial loans settled by brokers has increased to just under $9B in the six months to September 2019.

“The trend in the value of commercial lending appears to have reached a peak at ~$9 billion, with the results from the last five six-monthly periods continuing to show a flat trajectory tracking around this value.” The report said.

Loan book value of commercial brokers has grown to a record high.

Following a steady trajectory of growth over the past five years, the total book value of commercial brokers has topped $43B; up 7.57% over the past year.