The Mortgage & Finance Association of Australia (MFAA) is disappointed by the limited view of the mortgage broking industry that has been presented by the Productivity Commission’s Draft Report on Competition in the Australian Financial System.
The Report’s authors have failed to understand the reasons why consumers engage brokers to act on their behalf, and ignore the value that mortgage brokers have brought to the Australian economy over the past 20 years.
In addition, the Report does not acknowledge the reforms already put forward by the Combined Industry Forum (CIF) - some of which are already being implemented - that were designed to further strengthen strong customer outcomes across the industry, and which include a higher obligation to customers than is currently required by law.
MFAA CEO Mike Felton said that the broker channel has gained share because consumers continue to vote with their feet.
“The fact is that 55.7 percent of mortgages are now originated by brokers, and the broker value proposition for consumers is based on more than just price,” Mr Felton said.
“Mortgage brokers offer customers the choice of a wide range of lenders and products. They work through ever-increasing complexity to place their customer at the centre of the process and match products to their specific needs. Brokers offer convenience for customers by removing the administrative burden of obtaining a mortgage, whilst providing personalised advice and service over the life of the loan.
“They also help their customers find a product with a competitive rate.”
Mr Felton noted that the broker channel had fundamentally altered the market, and continued to drive competition and choice for consumers.
“Brokers offer a distribution channel that allows new lenders to enter the market, and allows smaller lenders to offer a shopfront to customers in places where they may not have branches. This means consumers in regional areas have access to a breadth of lenders they would simply not have otherwise.
“We could never have seen the entrants to the market we have seen over the past twenty years without mortgage brokers.
“It is also worth highlighting that the growth in mortgage broking has coincided with an increase in innovation and a decline in net interest margin in the market. At the same time, interest rates have decreased overall and remained low.”
The MFAA was also concerned that the Productivity Commission’s Report has called brokers’ motives into question, at a time when the industry has already recently been the subject of such intense scrutiny by financial regulators.
“We have been through ASIC’s Broker Remuneration Review and the ABA Sedgwick Review, neither of which found evidence of systemic harm to consumers,” Mr Felton said.
“At the same time, the industry has formed the CIF, which has already reported to ASIC and Government on a strong package of reforms that addresses the issues raised by ASIC around product and lender conflict.
“In particular, when it comes to customers’ interests, brokers are already required by law to recommend a ‘not unsuitable’ loan for customers. However, the CIF has proactively proposed that the industry go above and beyond what is required by the current legislation.
“We have defined a ‘Good Customer Outcome’ as ‘the customer has obtained a loan that is appropriate (in terms of size and structure), is affordable, applied for in a compliant manner and meets the customer’s set of objectives at the time of seeking the loan’. This provides the objective of all the CIF’s proposed reforms, and the benchmark which the industry will use to assess ourselves against in the future.
“Ultimately, brokers are entirely dependent on referral and customer relationships. According to a study produced by Ernst & Young for the MFAA in 2015, 92 percent of consumers surveyed were satisfied with their broker’s performance, which is no doubt contributing to the strong growth of the broker channel.
“I am extremely proud of the contribution brokers make to competition for consumers, and to the Australian economy overall. In 2018, the MFAA will continue to focus on implementing the CIF’s reform package, which will help make our industry – and our value proposition to consumers – even stronger over time,” Mr Felton said.
For further information, please contact: Stephen Hale, Head of Marketing & Communications on 0427 868 095 or firstname.lastname@example.org. The Mortgage & Finance Association of Australia (MFAA) is the peak body presenting finance brokers, mortgage managers, and aggregator/broking groups, to assist them to develop, foster, and promote the mortgage and finance industry in Australia.