Mortgage brokers move into planning space as commissions fall

Mortgage brokers are beginning to diversify into providing insurance and financial planning advice as commission levels in their industry continue to fall.

The recent consolidation of mortgage providers, and the resultant market domination by bank lenders, has seen mortgage broking commission levels fall dramatically over the last 12 months, according to recent research from Datamonitor.

The Datamonitor Australian Mortgage Broker Survey 2009 reports that brokers have become less optimistic about short-term business expectations, and as result have diversified into other product areas.

“The financial crisis forced non-bank lenders to exit the market, which had serious effects on the mortgage broker industry,” a statement from the researcher said.

“With the exit of non-bank lenders, the major banks achieved a stronger competitive position, which they can use to focus on the direct channel and to decrease commissions.”

The reports states that in July 2007 non-bank lenders accounted for more than 20 per cent of loan commitments to owner occupiers. By December last year, this figure had fallen to less than 7 per cent.

The movement of mortgage customers to the “perceived safety and security of the major banks” has hurt mortgage brokers, the report said, since non-bank lenders traditionally paid higher commission rates to brokers than the banks.

Asked about their average upfront commission levels, 80 per cent of surveyed brokers in the Datamonitor survey currently have a commission rate below 0.6 per cent. In 2007 only 27 per cent of surveyed brokers had commission levels in that range. Most brokers believe that commission levels will either stay the same in 2009 or fall even further, the report said.