Mortgage broking industry outlook is optimistic, but brokers must show value

Nick Young (pictured), managing director at Trail Homes, has seen it all in his 2.5 decades in the mortgage industry.

Major upheavals, from the Royal Commission and the introduction of Best Interests Duty (BID) to rapid post-Covid demographic shifts, have presented significant challenges and opportunities for enterprising mortgage brokers.

Through these twists and turns, brokers’ market share of the mortgage finance industry has only gone one way.

With over 76% of home lending volume coming via the third party, consumers have made it clear that brokers are the preferred facilitators of home ownership.

Read more: Most borrowers trust their mortgage broker

However, there are ample challenges facing the mortgage industry on the road ahead that will test the resolve of Australia’s 22,000-plus brokers.

While the mid-term mortgage broking industry outlook is largely optimistic, success will only come for the brokers who understand emerging challenges and futureproof their brokerages accordingly.

Young recently hosted Trail Homes’ Change in Market Dynamics seminar to discuss these challenges. MPA caught up with him to get the low down.

Barriers to entry

In many ways, becoming a mortgage broker is extremely easy. A Certificate IV can cost just a few hundred dollars and can be completed in a matter of months. Completion of this course, plus a professional membership with either the Mortgage and Finance Association of Australia (MFAA) or the Finance Brokers Association of Australasia (FBAA), allows a broker to start originating loans through an aggregator or franchise group.

Read more: What's the purpose of Australia's broker associations?

But the while education requirements are low, barriers to becoming a broker come in other forms.

“It’s becoming harder and harder to get into the industry, and I don’t see that changing in the next five years, particularly with the backdrop of licensing constraints and commercial lending hurdles,” said Young.

During the seminar, Rob Thomas (pictured, below), national director at mortgage aggregator Loan Market Group, raised an unfortunate Catch-22 situation in the commercial broking space that is making these barriers even harder to overcome. Many lenders want to see two years’ prior experience before accrediting a broker, which is making it harder for up-and-coming brokers to gain experience in the first place.

Thomas dubbed it “a Catch-22 that stifles talent”.

On the issue of remuneration, Young suggested that commissions are “likely to remain stable in the short to medium term”, although there are questions to be answered around commission structures in correlation to deal complexity and quality.

Thomas noted that brokers are currently paid the same rate “whether it’s a clear, one-touch file of one that requires 100 back-and-forth exchanges”. He “wouldn’t be surprised if we see a shift toward commissions being aligned to quality, rewarding efficiency and well-prepared applications”.

The seminar also heard from Jaime Savory, owner of Victoria-based brokerage Gippsland Finance.

“We’re well paid, but we must demonstrate the value, particularly around trail commissions,” said Savory. She expressed concern about brokers who earn trail without ongoing client engagement.

Regulatory threats

The broking industry underwent a dramatic regulatory upheaval in the wake of the 2018 Royal Commission.

Alongside bans on volume-based and campaign commissions, BID changed the game for how brokers provide customers with credit assistance.

Under BID, brokers are now legally required to prioritise their customer’s interests over their own interests at all times under threat of significant civil penalties.

These reforms have been roundly welcomed by brokers for improving the transparency and legitimacy of the industry. But they have not come without their unique challenges.

“While the Best Interest Duty has undoubtedly strengthened consumer protection, we must also acknowledge the significant compliance burden the industry now bears,” Sean Reid, managing director of MoneyQuest Group, told the seminar. 

Brokers are committed to doing the right thing, said Reid, but he called for regulation to be streamlined “to reduce unnecessary red tape without compromising standards”.

Young echoed Reid’s comments: “While core consumer protections should remain, the industry is ready for smarter, less cumbersome implementation frameworks.”

Artificial intelligence: Broker’s best friend or biggest foe?

“AI will not replace brokers, but it will increasingly be to the detriment of those who don’t embrace it,” Young said.

From Young’s perspective, “a home loan is such a significant transaction, and for any very significant transaction, humans look for the reassurance of another human before committing to any course of action”. 

“I want a human flying the plane, and I want a human to be my surgeon, but I also want my pilot and my surgeon backed by the best technology available. The same applies for my mortgage broker,” he said.

Savory touted the productivity benefits of AI, noting that her brokerage’s volumes have increased without increasing staff.

“We’re not short on leads or clients: it’s the admin burden that slows things down. AI has the potential to eliminate the double handling, back-and-forth, and manual data entry that consumes hours each week,” said Savory. “I think in five years, clients will expect brokers to use AI the same way they expect online booking with a restaurant or mobile check-in at a hotel. It’s about convenience, speed, and accuracy.”

“In a dynamic market, brokers who embrace change, tech and quality will be the ones who lead,” Young said. “What got brokers here won’t get them there”.