Brokers crucial to increased lending competition

In a review into small and medium-sized banks, the Council of Financial Regulators (CFR) has found that mortgage brokers have emerged as a key player in housing lending, contributing to a rise in market competition and providing borrowers with greater access to mortgage options.

In the first half of 2024, around 60 per cent of mortgages were written through brokers, according to the CFR.

Further, the Mortgage & Finance Association of Australia’s (MFAA) latest Industry Intelligence Service report (IIS) highlighted mortgage broker market share reached its highest point at 74.6 per cent during the September quarter of 2024, an increase of 19.3 per cent since March 2018.

Brokers’ market is expected to rise to 80 per cent throughout 2025, according to aggregator LMG.

Smaller banks, in particular, have increasingly relied on brokers, with some non-major banks sourcing a higher proportion of their new mortgages from brokers than the major banks. However, very small banks still originate only about a quarter of their new mortgages through brokers.

This shift towards broker-originated lending reflects broader trends in the Australian banking sector. Past reviews, including the 2018 Productivity Commission inquiry, have highlighted the limited competition in the market, with the major banks enjoying significant pricing power.

The inquiry found that, while all banks have a degree of pricing power, the major banks are still the dominant force and can charge higher premiums above their marginal costs.

The Australian Competition and Consumer Commission (ACCC) has also expressed concerns over the opaque discounting practices of banks, which contribute to higher search costs for borrowers and deter them from shopping around for the best deals.

These practices, along with prudential regulations and cash rate settings, indirectly influence the cost of funds for banks, leading to constrained price rivalry.

The CFR found that, in this context, mortgage brokers play an increasingly crucial role in enhancing transparency and facilitating competition in the lending market, lowering barriers to customer switching and potentially driving better outcomes for borrowers.

Lending remains the primary revenue driver for Australian banks, currently accounting for 85 per cent of their income, up from 70 per cent in 2011.

However, the share of the major banks in lending markets has been gradually declining, particularly in housing lending, with small and medium-sized banks capturing a greater portion of the market in the past five years.

Despite this shift, the recent acquisition of Suncorp Bank by ANZ has reversed a significant portion of the major banks’ losses in housing market share, particularly since 2019.

In business lending, foreign branches have largely filled the gap left by the major banks, focusing primarily on large businesses, while non-bank lenders have increased their share, particularly in lending to small and medium-sized enterprises (SMEs).

Personal lending, which represents only 5 per cent of total credit, has seen significant growth in non-bank lenders, including automotive finance providers; buy now, pay later services; and other personal loan products.

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Adrian Suljanovic is a journalist at Broker Daily with more than two years experience reporting on all facets of the third party distribution channel.

Adrian has written for a range of business and finance titles including IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

E-mail Adrian at: This email address is being protected from spambots. You need JavaScript enabled to view it.