New broker commission structures lock small lenders out

Mortgage originators, credit unions and building societies were showing signs of a comeback after having lost share to the banks over the past year, according to JP Morgan banking analyst Scott Manning.

"Credit union and building society capacity to originate profitable mortgage flow was severely crimped due to deposit compression of the funding base in a rapidly falling interest rate environment.

"More recently they have modestly increased volumes as legacy term deposit rates have re-set, allowing them to participate in the first home owner uptick."

But Fujitsu Consulting's Martin North warned that smaller lenders would need to offer something "compelling" to get the attention of brokers who are now tied closely to the banks by the remuneration policies that were introduced last year.

Banks are demanding minimum loan writing volumes as a condition for doing business with broker groups. And they have tiered their fees so that the top rates go to brokers who write big volumes, file applications electronically and meet required conversion rates.