The rise of mortgage brokers

Large and small lenders alike are embracing the use of mortgage brokers as a low-cost source of finding new customers. Institutions and lenders that have previously found themselves resisting the move to form alliances with broking networks are slowly embracing the concept in an effort to increase market share.

Lenders who have preferred to be in full control of their product and the way it is sold are reluctantly allowing their products to be offered by third-party sources. A competitive interest rate has traditionally been the most significant selling point when it comes to mortgages. However, brokers are looking for a combination of cheap rate and swift, efficient approval.

The settlement process is of paramount importance to the broker for two reasons :
– it ensures customer satisfaction but more importantly enables speedy payment of commissions to the broker
– a broker is more likely to sell a loan that will settle with a minimum of fuss as opposed to being tied up in red tape, also a favorable outcome for the borrower.

Whether brokers actually represent an unbiased and independent means of getting the best deal for a home loan is questionable as they are not policed or governed by any type of legislation. Brokers are basically salesmen and earn their living via commissions for loans settled. So how does the borrower satisfy himself that the broker is being objective and not biased in view of potential commission?

Analysts are already noting that brokers are beginning to make an impact in housing finance and predicting market share for brokers will increase from 25 per cent to 40 per cent. Slowly but surely consumers seem to be slowly abandoning traditional means of getting loans.

However brokers are bringing together parties which might never meet under normal circumstances. For example, a borrower in Melbourne recently had a loan approved by a large regional building society in NSW he was not aware existed. Neither would have been likely to do business with each other if each had not used the service of the broker.

With margin squeeze being applied through tougher competition banks and non-banks alike must move towards other forms of income. Mortgage brokers are likely to play a crucial role in opening new revenue streams.