Bank Of Melbourne To Use Mortgage Brokers

As you may or may not know, Westpac has decided to get rid of its recently purchased St-George in Victoria to replace it by Bank Of Melbourne – a purchase made in 1997 and binned in 2004. Confusing?

 

Maybe a little, but for banks it's all about branding and proximity, and in order to communicate different messages to different target audiences they need to use a variety of vehicles. So it seems we are now getting a new bank.

I am not sure how much this is going to increase competition in the market, because while most people arranging home loans in Melbourne are not aware of the ownership structure of the bank, the reality is that it is unlikely that a Westpac owned brand is going to rock the boat too much.

But I'm getting off track what I wanted to discuss was Bank of Melbourne's recent change of heart in deciding that after all they are going to use mortgage brokers.

Lenders argue that a loan written in the branch is up to 30% more profitable than one written by a mortgage broker.

 

That is, if you have a very narrow reading of the figures: assuming that the client would have decided to use this lender in the first place and also assuming that the branch staff could accommodate the customers needs, then yes, the branch loan would be 30% more profitable I am sure. After all, the mortgage broker needs to be paid an upfront commission and a trail commission.

However, when you consider the amount of money that a lender would need to outlay for these 2 assumptions to materialise, you have a brand new equation to look at:

potentially millions of dollars need to be spent in order for a customer to walk into bank A instead of bank B.

Then there is the cost of the premises for the client to walk in, and finally the cost of the staff (including training) that needs to be implemented in order for the staff to successfully assist the client. I'm not sure if these costs have been quantified, but I have a gut feeling that the 30% (and potentially more) are gone in a blink. Indeed the commission paid to the broker covers the sourcing of the client, the meetings, the loan writing and post settlement customer service: now surely that makes the whole offering a lot more appealing figure wise.

And surely it's not only my gut feeling, as the resuscitated Bank Of Melbourne went from a business plan in March that did not include Mortgage Brokers within its distribution channels, to a recent confirmation that Mortgage Brokers will indeed be used to sell its products.

Maybe it is because their staff indicated that they were not keen on evening or weekend appointments, or perhaps they were concerned that their new credit team might have little to do if not enough people applied for their mortgages in this slow environment. Maybe costs have been included within the equation and loans written by mortgage brokers are not so unattractive for banks after all.

In every case it appears that we will very shortly welcome another lender to the market. And whilst I'm sceptical about the competitiveness of their offering, Super Finance will most certainly be reviewing all products to ensure that our clients benefit from any worthwhile offers newly introduced to the market.

 

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