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The Australian Mortgage Broker Survey 2007 Market Review

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The Australian Mortgage Broker Survey 2007: Market Review

Description:       Introduction


                   The broker channel has become increasingly important in the distribution of mortgage products in the
                   Australian market over the last few years. This report looks at how the mortgage broker channel is changing
                   and focuses on issues and challenges faced by brokers.


                   Scope


                   Uses Datamonitor's Australian Mortgage Broker Survey 2007 to understand brokers' thoughts of various
                   mortgage issues and challenges. Quantifies the size of the broker channel in the Australian mortgage market.
                   Analyzes current trends in the broker channel.


                   Highlights


                   In Datamonitor's Australian Mortgage Broker Survey 2007, 26% of brokers thought their refinancing business
                   would increase, down from 41% of respondents surveyed in 2006. This indicates that refinancing is not as
                   significant a growth segment for mortgage brokers as it once was. Broker groups are expected to undergo
                   further consolidation, as competition increases and as economies of scale become more important. Lower
                   margins on residential mortgages means that efficiency and scale becomes more important, and that smaller
                   players will have a harder time to stay competitive. The increasing consolidation of mortgage brokers can be
                   seen as a sign the industry is maturing. Some industry sources believe that consolidation and regulation may
                   herald a new era for mortgage brokers, and that stability will increase as lenders commit to long-term third
                   party distribution.


                   Reasons to Purchase


                   Provides you with the analysis of how the broker channel is changing, thus allowing you to better plan your
                   distribution strategies. Learn about the challenges facing the Australian broker channel and adapt your
                   strategies accordingly. Learn who are the most commonly used mortgage lenders in the broker channel.

Table Of           Overview 1
Contents:          Catalyst 1




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                 Summary 1
                 Executive Summary 2
                 The broker channel has evolved into an integral part of the Australian mortgage market 2
                 Mortgage brokers offer a full range of products 2
                 Given the increased importance of mortgage brokers, lenders compete for their business 2
                 Regulation, channel conflict and commission cuts threaten mortgage brokers 2
                 Brokers are relatively unconcerned about upcoming regulation 2
                 Brokers regard competition from the direct channel as a major threat 3
                 Increased competition has led to downward pressure on commissions 3
                 There are opportunities for the mortgage broker channel to grow 4
                 Many mortgage brokers plan to expand into other products 4
                 Mortgage brokers must continue to leverage customers' desire for personal service 4
                 The broker channel is expected to consolidate 4
                 The broker channel is expected to originate half of all new residential loans in three years 5
                 Table of Contents 6
                 Table of figures 7
                 Table of tables 8
                 Market Context 9
                 The broker channel has evolved into an integral part of the Australian mortgage market 9
                 Mortgage brokers now originate around 40% of new residential loans in the Australian market 9
                 Major banks have come to rely increasingly on mortgage brokers 9
                 Smaller banks use mortgage brokers to an even larger extent than major banks 9
                 Mortgage brokers continue to be crucial to non-bank lenders 10
                 New participants have changed the composition of the mortgage broker market 10
                 There has been an influx of new younger entrants 10
                 Broker groups have come to dominate the mortgage broker market 10
                 Mortgage brokers now offer a full range of products 11
                 Mortgage brokers often provide non-standard mortgages 12
                 Most brokers focus on conventional mortgages 12
                 The average broker originated loan size is over A$300,000 dollars 12
                 Refinancing is still an important part of mortgage broker business 13
                 Brokers surveyed believe that refinancing will stay at similar levels next year 15
                 Given the increased importance of mortgage brokers, lenders compete for their business 16
                 CBA has gained the top spot as the most commonly used lender 16
                 Of the non-bank lenders, the most commonly used lender was RAMS 17
                 Issues Facing the Broker Channel 18
                 Expanded regulation of the mortgage broker industry now seems inevitable 18
                 ASIC commissioned a report recommending regulatory reform over four years ago 18




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                 Recent increases in housing stress and repossessions have led to renewed calls for federal legislation 18
                 Brokers are confident that regulation will not affect their business 19
                 Brokers regard competition from the direct channel as a major threat 20
                 Brokers are worried lenders may look to pull away from broker distribution 20
                 Australian banks have strengthened their branch network 21
                 Increased competition has led to downward pressure on commissions 21
                 84% of brokers highlight decreasing commissions as a prime concern 21
                 24% of brokers expect commissions to decrease in the next 12 months 22
                 Brokers are unsure of what would constitute a reasonable one-off fee 22
                 Future Focus 23
                 Mortgage brokers do recognize the need to adapt to a dynamic mortgage market 23
                 Increasing product complexity will provide opportunities for mortgage brokers 23
                 47% of brokers envision expanding into other financial products besides mortgages 23
                 Mortgage brokers must continue to leverage customers' desire for personal service 24
                 The broker channel is expected to consolidate and grow 25
                 Further consolidation is expected in the industry as it matures 25
                 The broker channel is expected to originate half of all new residential loans in three years 26
                 APPENDIX 28
                 Supplementary data 28
                 Definitions 33
                 Bank 33
                 Broker 33
                 Clawback 33
                 Lending commitments 33
                 Low-documentation loan 33
                 Mortgage package 33
                 Non-bank lender 33
                 Non-conforming loan 33
                 Refinancing 33
                 Trail commission 33
                 Methodology 34
                 Further reading 34
                 Ask the analyst 34
                 Datamonitor consulting 34
                 Disclaimer 34
                 List of Tables
                 Table 1: Annual loan settlements in the financial year for major aggregator groups, 2006-7 28
                 Table 2: Average loan size mediated by mortgage brokers, 2006-07 28




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                 Table 3: Refinancing lending commitments and proportion of total owner-occupier lending commitments,
                 1992-2006 29
                 Table 4: Refinancing proportion of mortgage brokers' business in the last year, 2006-07 29
                 Table 5: Expected change in refinancing in current year, 2006-07 30
                 Table 6: Brokers choice of main three lenders, 2006-07 30
                 Table 7: Business expectations of current year compared to last year, 2006-07 31
                 Table 8: Proportion of brokers concerned with issues, 2007 31
                 Table 9: Proportion of brokers considering expanding product line, 2007 32
                 Table 10: Forecasted residential mortgage lending commitments, 1992-2011 32
                 List of Figures
                 Figure 1: Only 17% of brokers are concerned about the prospect of increased regulatory scrutiny, 2007 3
                 Figure 2: PLAN and AFG have annual loan settlements in excess of A$20 billion each, 2006-7 11
                 Figure 3: The average loan size for brokers is over A$300,000, 2006-07 13
                 Figure 4: Refinancing has become more important over the last 10 years 14
                 Figure 5: Refinancing as a proportion of mortgage brokers' business has declined slightly but remains
                 significant, 2006-07 15
                 Figure 6: Most brokers think that refinancing will stay at current levels, 2006-07 16
                 Figure 7: CBA has become the most commonly used lender by brokers, 2007 17
                 Figure 8: Only 17% of brokers are concerned about the prospect of increased regulatory scrutiny, 2007 19
                 Figure 9: Most brokers expect their business to improve this year compared to last, 2006-07 20
                 Figure 10: Many brokers are considering expanding into life insurance products, 2007 24
                 Figure 11: Residential mortgage lending commitments are forecasted to increase to A$316 billion by 2011 26




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