Mortgage Professional Australia| 25 August 2017

http://www.mpamagazine.com.au/sections/market-talk/surprise-commissions-are-actually-going-up-240375.aspx

Mortgage Choice’s full year results cast doubt on gloom surrounding broking’s business model

Commissions are going up, according to the head of one of broking’s biggest franchises, as they revealed their full-year results yesterday.

The average upfront commission received by Mortgage Choice has risen to 0.6544% from 0.647% in FY2016. Commissions are trending upwards, explained CEO John Flavell, “we reset commercial terms with a number of our significant lenders over the last 24 months, whereby the rates of commission have actually increased.”

According to Flavell, this increase is not a one off: “we actually see them [commissions] more in an upwards direction than anything else.”

A 3.8% increase in revenue from upfront commissions meant almost $3m extra in revenue for Mortgage Choice over the year. This increase can be partially attributed to the company’s growth and it should also be noted that the average trail rate fell marginally, revenue from trail continued to grow.

What’s driving commissions up?

Flavell attributed the increase in commissions to competition between lenders.

“We’ve got a lot of tension in the market in terms of competitiveness”, observed Flavell, noting that there were many lenders “which would very much like to have their products available for distribution through our network.”

Lenders continued to see value in their broker distribution partners, added Flavell:“in simple terms in terms of delivery, equally in terms of ROE from the lenders’ perspective, is very sound, it’s very solid and it’s very robust.”  The proportion of Mortgage Choice loans going to the majors fell by 4% and the marketshare of non-majors and non-banks rose, reflecting lender competition.

Mortgage Choice’s average commissions, as reported in their results, may, in fact, be underestimating current commission levels, Flavell indicated. Mortgage Choice still had pre-GFC loans on their books, with very high commissions, and the gradual diminishing of this book brought down the average.

It should be noted that Mortgage Choice brokers receive the same level of commission regardless of the lender they deal with.

Not all rosy

Mortgage Choice’s ability to renegotiate commission levels with its partners is not necessarily shared by all aggregators, nor individual brokers.

Along with all brokers, Mortgage Choice has to deal with inter-broker competition as numbers increase yet the broker market share remains close to static at 51.5% if all loans. Mortgage Choice’s numbers grew at record levels this year with 46 new greenfield sites established, but Flavell denied accusations that he could be setting up new brokers for failure:“Mortgage Choice’s share of the market is 3.7% so the opportunity for us is most significant. Beyond mortgages, we’re continuing to diversify the range of services we offer our customer base.”

Mortgage Choice launched a new branded asset finance product in 2016 which 46% of their brokers had used at least once.