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The Australian Mortgage Broker Survey 2006

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The Australian Mortgage Broker Survey 2006

Description:    The Australian Mortgage Broker Survey 2006 is an invaluable guide to the dynamics of Australian
                mortgage brokers. It gives readers insight into the attitudes and trends of brokers. It covers a
                substantial amount of qualitative and quantitative information including lenders most commonly
                used in both the standard and non-standard mortgage market and lender qualities that are valued
                by brokers.

                Scope of this title:
                - This report collected a substantial amount of primary data covering attitudes towards different
                lenders and which lenders are preferred.
                - It reveals the average upfront and trail commission rates and the incidence of volume based
                incentives
                - It discusses product features which are most valued by consumers.
                - It looks at how well the non-standard mortgage market is understood and which lenders are used
                when recommending these products

                Highlights of this title:
                - Our mortgage broker survey reveals that consumers place the most value on having a low
                variable interest rate with 60% of respondents stating it as either the first or second most
                important feature.
                - Our mortgage broker survey results show that St George is considered to offer the best all round
                service. It pays one of the highest upfront and trail commission combinations in the market
                indicating these are important to brokers although they are unlikely to publicly admit this.

                Reasons to order your copy:
                - Find out what mortgage brokers want from their lenders
                - Find out which lenders are most regularly used by brokers and which offer the best service
                - Lenders: find out what mortgage brokers think of you and your products



Contents:
                Chapter 1
                Executive summary 3
                The Australian mortgage market continues to grow 3
                Fast lending decisions and big lenders appeal to brokers 3
                Low interest rates are the most desired feature in a mortgage product from a clients perspective 4
                Mortgage brokers were well rewarded for writing mortgage business 4
                Surveyed brokers expected refinancing and first time buyers to remain prominent borrowers over
                2006 5
                Awareness of non-standard mortgage products is high and lenders can expect more of these loans
                to be written in the future 5
                The outlook for brokers is positive provided commissions are not reduced 5


                Chapter 2
                Introduction 15
                Scope 15
                Who is the target reader? 15
                How to use this report 15


                Chapter 3
                Market context 17
                The Australian mortgage market continues to grow 17
                The housing lending market in Australia 17
                Total lending commitments for housing had increased to AUS$211.7 billion by the end of 2005 17
Average house price growth has slowed in recent years 18
In terms of total housing lending owner-occupied lending has increased while investment lending
has fallen 19
A comparison of the average loan size from the Australian Bureau of Statistics and our survey of
mortgage brokers 20
The average loan size published by the ABS is smaller than that revealed by the survey 20


Chapter 4
The broker and the lender 22
Fast decision and big lenders appeal to brokers 22
Brokers cited fast lending decisions as the most favourable attribute of a lender 22
Having fast lending decisions is most important to brokers 23
Low comparison interest rates are also considered essential 23
Offering a wide range of product features is important 23
Brokers also had preference for direct contact with the decision maker and support from the help
desk 23
Commission not a factor 23
Of least importance are alternatives such as electronic submission capability and brand strength 24
St George is the lender offering the best all round service 25
St George offers the best all-round service to brokers 25
ING Bank is also ranked highly in offering best all-round service to brokers 26
Brokers also consider ANZ to offer good all-round service 26
Three lenders that brokers consider to offer satisfactory all-round service are Westpac, Homeside
Lending and Commonwealth Bank of Australia 26
ANZ is the most commonly used lender followed by ING and St George 27
ANZ is the most commonly recommended lender by mortgage brokers 28
ING is the second most commonly used lender, equivelent to its rank in best all-round service
provision 28
Brokers rank St George as the third most commonly used lender 28
Commonwealth Bank received 7% of total responses 29
Westpac ranks fifth in terms of most commonly used lenders 29
BankWest is currently the sixth most commonly used lender 29


Chapter 5
The mortgage product 31
Low interest rates are the most desired feature in a mortgage product 31
Consumers place high value on low interest rates followed by packaged products 31
According to brokers, clients place the most value on a low variable interest rate 31
Having a packaged product was also important to many clients 32
According to brokers, clients place almost equal value on having an overpayment facility and a
redraw facility 32
Clients also place emphasis on the mortgage product having an attractive fixed rate 32
Consumers place little value in low introductory rates 32


Chapter 6
The commission structure of the mortgage broker market 34
Mortgage brokers are well rewarded for writing mortgage business 34
Mortgage brokers receive more than 0.7% upfront commission 34
The average upfront commission in the market is higher than that offered by the big five lenders 34
The most common upfront commission was between 0.61% and 0.70% 35
On average brokers receive a trail commission of between 0.21% and 0.30% 36
The average trail commission in the market is below that offered by the big five lenders 36
The most common trail commission was between 0.21% and 0.30% 37
The other category shows 3% of respondents to earn a trail commission of more than 0.4% 37
Volume based incentives are also available to mortgage brokers 38
The most common volume based incentive is between 1% and 10% 38
The majority of respondents choosing the other cateogry stated that their volume based incentive
was difficult to specify 38
Mortgage brokers are happy with their current commission structure 39
Half of the surveyed brokers are happy with their commission structure 39
Surveyed brokers suggest that they prefer less upfront commission and more trail commission 40
Approximately 12% of respondents would like to change their commission structure by increasing
upfront commission and reducing trail commission 40


Chapter 7
Refinancing and other types of housing borrowing 42
Refinancing will continue to be the most common borrowing type over 2006 42
Data from the Reserve Bank of Australia shows that refinancing has increased as a proportion of
total lending 42
Refinancing represents a significant portion of total loans written by brokers 43
Brokers do not envision any major changes to the level of refinancing in 2006 44
Refinancing is the most prominent type of borrowing for the majority of mortgage brokers surveyed
45
First time buyers with less than a 20% deposit also rank as an important borrowing category 46
Low doc lending is also considered an important 46
Reverse mortgages remain an smaller contributor to broker businesses 46
Most mortgage brokers surveyed did not expect their business mix to change significantly in 2006
47


Chapter 8
The non-standard mortgage market 49
According to our survey, awareness and understanding of non-standard type mortgage products is
relatively high and lenders can expect more of these loans to be written in the future 49
Most surveyed brokers are able to define a reverse mortgage 49
Brokers are readily able to name reverse mortgage providers 51
The most commonly listed reverse mortgage provider is Bluestone closely followed by St George 51
Pepper and ANZ were the most commonly cited lenders that are not reverse mortgage providers 51
Approximately 11% of respondents were unable to cite a list of three reverse mortgage providers
52
Brokers are familiar with sub-prime mortgage providers 53
The surveyed brokers reveal a relatively even split for preference in using: specialist providers or
larger mainstream lenders 54
A list of the most commonly used specialist mortgage lenders 55


Chapter 9
The future for mortgage brokers 58
The outlook for brokers is positive provided commissions are not reduced 58
Mortgage brokers have positive expectations for their business performance 58
Brokers expect their suite of products to expand 59
Commissions are the only major source of concern for brokers 61
Lenders reducing the commission level is considered the greatest concern by brokers 61
Also of concern is the possibiltiy of lenders aligning their commissions to the product profit and
margin 61
Brokers are concerned that lenders are moving away from this distribution channel although we
suggess that this is unlikely 61
There were three issues that were of little concern to brokers 62

APPENDIX 64
Supplementary data 64
Definitions 75
Balances outstanding 75
CAGR 75
Cash rate target 75
Gross advances 75
Lending commitments 75
Non-conforming 75
Research methodology 75
Primary research 75
Secondary research 76
Future readings 76
Relevant links 76
Our custom research capabilities 77
Asia Pacific SPP writing team 78
How to contact experts in your industry
List of Tables
Table 1: Out of the big five St George offers the highest commission combination to brokers 35
Table 2: Just fewer than 40% of total respondents expect 2006 to be no different in business mix
while some anticipate an increase in both reverse mortgages and low doc loans 48
Table 3: Bluestone, St George and Macquarie are the most commonly recognised reverse mortgage
lenders. The mainstream lenders such as Commonwealth Bank have much lower recognition 52
Table 4: Bluestone, Liberty and Pepper were the most commonly cited sub-prime mortgage
providers 54
Table 5: Bluestone, Liberty and Pepper are the most commonly used specialist mortgage providers
57
Table 6: Total housing lending commitments, 2001-2005 64
Table 7: Median house price, 1990-2005 64
Table 8: Owner-occupied and investment housing lending, 1990-2005 65
Table 9: What is your average loan size? 65
Table 10: What do you consider to be the three most important attributes of the lenders you deal
with the most frequently? 66
Table 11: Which three lenders do you most commonly use? Include banks, building societies,
specialists and credit unions 66
Table 12: In your opinion, which three lenders offer the best all-round service to brokers? Include
banks, building societies, specialists and credit unions 67
Table 13: In order of importance, how would you rank the following product features from your
clients perspective? Rank from 1-6 where 1 is the most important 67
Table 14: Which of the following best matches your average upfront commission rate? Answers are
in percentage (%) 68
Table 15: Which of the following best describes your average trail commission rate? Answers are
expressed as a percentage (%) of the loan book 68
Table 16: Which of the following best matches your average volume based incentive? Answers are
expressed as a percentage (%) 69
Table 17: If you could change your commission structure, which of the following would you choose?
69
Table 18: Lending commitments for owner-occupied properties by purpose, 2001-2005 70
Table 19: In 2005 what proportion of the value of your business would you estimate was based
upon refinancing? 71
Table 20: More than 50% of respondents expect the proportion of refinancing to total business in
2006 will be similar to that experienced in 2005 71
Table 21: How would you describe your business mix? Rank the types of lending in order of
importance where 1=most important, 6=least important and 0=not applicable 72
Table 22: Which of the following best describes a reverse mortgage product? 72
Table 23: Would you prefer to use a sub-prime mortgage specialist or a major provider offering sub
-prime mortgages? 73
Table 24: How do you expect your mortgage business to perform in 2006 73
Table 25: Do you envisage increasing the suite of product that brokers expect to add to their
product suite in the future 74
Table 26: On a scale of 1-3 how concerned are you by the following? Rate responses where 1 is
very concerned, 2 is slightly concerned and 3 is unconcerned
List of Figures
Figure 1: Lending commitments are continuing to increase and peaked at AUS$211.7 billion at the
end of 2005 18
Figure 2: Median house prices are continuing to rise with the current average price in excess of
AUS$344,000 19
Figure 3: In 2004 and 2005 lending for investment housing as a proportion of total lending fell 20
Figure 4: The survey results show that 28.6% of mortgage brokers have an average loan size
between AUS$251,000 to AUS$300,000 21
Figure 5: The attributes of lenders that brokers consider most important are various 25
Figure 6: St George is considered by mortgage brokers to provide the best all-round service 27
Figure 7: ANZ is the most commonly used lender by brokers, followed by ING and St George 30
Figure 8: According to brokers, clients place the most value on mortgage products having an
attractive variable rate 33
Figure 9: Of the mortgage brokers surveyed, 41% are paid an average upfront commission
            between 0.61% and 0.70% 36
            Figure 10: The most common average trail rate was between 0.21% and 0.30% 37
            Figure 11: More than three quarters of respondents do not receive a volume based incentive while
            for those receiving one the average is between 1-10% 39
            Figure 12: Of those brokers surveyed, 50% of respondents said they were happy with their
            commission structure and no change was necessary 41
            Figure 13: Refinancing as a proportion of total lending had increased from 19.1% in 2001 to 27.9%
            in 2005 43
            Figure 14: The survey shows that for the majority of lenders refinancing contributes up to 50% of
            their business, with the most common proportion being between 11% and 20% 44
            Figure 15: More than 50% of respondents expect the proportion of refinancing to total business in
            2006 will be similar to that experienced in 2005 45
            Figure 16: Refinancing proved again to be the most important borrowing category, followed by first
            time buyers with less than a 20% deposit 47
            Figure 17: Almost 73% of surveyed mortgage brokers were able to define a reverse mortgage while
            just 3% of respondents had no understanding of these products. 50
            Figure 18: Surveyed brokers have no clear preference for mainstream or specialist sub-prime
            providers 55
            Figure 19: According to the mortgage survey broker 92% of the respondents expect their 2006
            business revenues to be similar or higher than 2005 59
            Figure 20: Insurance was the most likely product that brokers expect to add to their product suite
            in the future 60
            Figure 21: The possibility of commission being reduced was the primary concern for surveyed
            brokers. 63
            Figure 22: Our core consulting capabilities 78



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