Rising broker share of mortgage originations and the growing presence of brokers in the commercial finance market have changed the outlook for the sector and triggered a wave of acquisitions in the broker market this year.
Aggregator groups AFG and COG Financial Services have a history of growing by acquisition and continued that activity this year. REA Group bulked up its Smartline broker business with the acquisition of Mortgage Choice.
Lenders Resimac and Prospa diversified their businesses with investment in the broker market. Mortgage broking franchise operator MoneyQuest acquired aggregator Buyers Choice.
And in a variation on the theme, two broker groups – Purple Circle Financial Services and Mortgage Australia Group – announced the formation of a co-operative, Co-Active Finance Group, to co-ordinate the purchase of services. The parties’ long-term aim is to get other broker groups to join the co-op.
According to data compiled for the Mortgage and Finance Association of Australia by researcher Comparator, broker share in the mortgage market hit 66.9 per cent in the September quarter, up from 60.1 per cent in the September quarter last year.
Broker share has risen from around 55 per cent over the past two years.
MFAA chief executive Mike Felton said in a statement that the growth in broker share was the result of referrals from satisfied customers.
Another factor is the closure of bank branches. In October, APRA reported that the total number of branches fell 9 per cent to 4491 over 12 months. The number of branches has fallen by 22.8 per cent over the past five years.
Brokers are also growing share in the commercial finance market. According to the Judo Bank prospectus, historically SME lending has been originated through proprietary bank channels such as branches and relationship bankers. In contrast, finance brokers traditionally almost exclusively focused on the home loan market.
However, the role of the finance broker has shifted as banks increasingly substitute face-to-face interactions with centralised call centres and digital channels. In the 12 months to June 2019, finance brokers who write commercial loans helped SMEs access over 89,000 commercial loans and more than 199,000 asset finance loans.
“The growth in commercial brokers has in part been due to the decline of in-person relationship coverage offered to SMEs as well as other factors including operating cost pressures. As such, customer-facing commercial brokers have become an important origination channel within SME lending and are a vital part of our business model,” the Judo prospectus says.
The biggest deal of the year was the A$244 million acquisition of Mortgage Choice by REA Financial Services Holdings, part of the REA real estate group.
The Mortgage Choice board supported the takeover, saying the business would benefit from combining with REA’s Smartline broking business and getting access to its digital capability.
Brokers face the same pressures as other businesses in financial services to invest in product, services and technology. Mortgage Choice is falling behind, with a loan book that has not grown since 2018, problems growing its franchise network and an investment in financial planning that has not paid off.
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