The pros and cons of a broking career
If you have a knack for numbers and building strong relationships with clients, mortgage broking may just be the career for you.
Discover how to become a mortgage broker and build the life you want.
Why do people choose a broking career?
- Opportunity to earn a great income.
- Great work/life balance.
- Some brokerages offer brokers a base income as a safety net.
- There is a degree of independence in the day-to-day work so you can put your own personal spin on the service you deliver and how you advertise (as long as you’re following compliance requirements).
- You get to help everyday Australians achieve their dreams of ownership, particularly those who don’t quite fit standard lending policy.
- Outside of licensing, certification requirements and ongoing professional development required by your professional body, you don’t need a degree to become a mortgage broker.
Want to know more about a broking career?
Simply go to our broker info night page and register for our free information night. Hope to see you there!
Is mortgage broking right for you?
What is a mortgage broker?
At the most basic level, a mortgage broker acts as an intermediary between the borrower and the lender.
They operate under a credit licence and are certified by the Australian Securities and Investments Commission (ASIC) to recommend mortgage products based on a thorough assessment of a client’s situation.
As per the requirements set out in the National Consumer Credit Protection Act 2009 (NCCP Act), a broker must not recommend a product that is unsuitable for a client.
But it’s so much more than this!
To find out more, check out the ‘What is a mortgage broker?’ page.
If you would like to know more about a mortgage broking role at Home Loan Experts, please email email@example.com.
Feel free to include a copy of your curriculum vitae and a cover letter explaining why you want to work for us.
What are the realities of mortgage broking?
Did you know that only 35% of brokers continue in their second year of broking?
Or that the median salary for a mortgage broker is around $53,000 per annum? (payscale.com, administrator of the largest real-time salary survey in the world).
Here’s why broking can be as tough as it is rewarding:
- The first year can be very hard since you will be working longer hours than working in a bank.
- You won’t see much in the way of upfront and ongoing commission for the first year.
- Working with banks can be frustrating.
- It’s a profession that comes with a lot of compliance and legislative requirements.
- Ultimately, you’re dealing with significant loan amounts and with each transaction, there’s a lot at stake.
- A broker needs to have analytical and sales skills, which rarely occur together in one person.
- The reality is that it can take as long as 5 years to become a great broker.
What it takes to be successful
First and foremost, becoming a mortgage broker isn’t a get rich quick scheme and it’s not a part-time role, at least not for the first couple of years.
Personality-wise, you have to be a people-person with the mind of an analyst.
Other attributes include:
- Being a quick learner.
- Highly-driven and willing to put in long hours of work and professional development.
- A passion for helping people but also having the resilience to handle rejection.
- Strong maths skills.
- Sound judgement and common sense.
- Good communication and negotiation skills.
- Strong attention to detail.
As a bare minimum, you’ll need a:
- Clear criminal record.
- Clear standing with the banks.
Many people that become mortgage brokers come from banking and financial services or from the real estate industry.
However, having the right attitude is key.
That’s why mortgage broking is actually open to people from a wide variety of backgrounds.
In fact, some of the most successful brokers didn’t even have a financial services background before they joined the industry!
To work out whether you fit the mould, speak with other mortgage brokers currently in the industry and consider doing some work experience.
A day in the life of a broker
The first step a broker takes is to properly assess a client’s financial situation and what their goals are.
This begins with a discussion about their requirements and objectives as well as completing a fact find or generic application form.
You will need to collect the necessary documents required to verify their identification, income level, assets, level of debt and credit history.
These documents include payslips, Notices of Assessment (NOAs) and Business Activity Statements (BAS) and you’ll need to learn how to read all of them.
Check out the Application Documents Checklist to get a better idea.
After this, you will research the policies and mortgage products from a range of different banks and lenders (on the lending panel of your aggregator) and recommendations to the customer.
The customer will choose an option and you will then submit a mortgage application.
Great brokerages and aggregators have either streamlined their application process or have support staff to assist them.
In this way, you can focus your efforts on sales and building a strong network of clients.
It’s not about the loan!
Let’s face it, no one wants a mortgage.
That’s why a mortgage broker’s job is to help customers achieve their goals, not to get them a loan.
For example, it could be:
- Buying their first home or investment property.
- A new migrant looking to start a new life in Australia.
- Moving house after divorce.
- Release equity to help someone expand their business.
- Consolidating debt to put someone in a better financial position.
You constantly need to show how you’re adding value at each stage of the process and even after settlement.
Otherwise, why wouldn’t a borrower just go to a bank directly?
The following are some examples of how brokers create value.
Prior to the application
Provide tips on saving money, reducing debt, where to find properties (free property and valuation reports) and how to negotiate at auction.
You need to answer their questions, such as what properties and locations are considered high risk and how they can go about preparing for the application.
During the application process
Help clients to prepare their documents, particularly self-employed applicants or those who earn an income via a trust or company arrangement.
This may involve liaising with an accountant.
Another great strength to demonstrate to your client is how you can get a great deal that banks or other brokers can’t offer.
Lack of communication is a major pain point for borrowers dealing with banks and mortgage brokers alike.
The best brokers keep their clients constantly updated on the progress of their application and explain how they’re addressing any breakdowns in the process.
This is where a lot of brokers fail but where you can continue to make a strong impact.
Continuing to keep clients informed of changes in the property market and interest rates is important.
Clients want to know that they are still getting a good deal, that their mortgage is still working for them and when they can access equity for further investment.
Some brokers provide their clients with regular mortgage “health checks” which may involve re-fixing or splitting their mortgage, adding a line of credit facility or increasing or decreasing the limit on any credit cards tied to the package.
Justify the trail commission you’re receiving!
The amount you earn per annum is limited only by the volume of loans you settle per month.
How are brokers paid?
Firstly, when you settle a home loan, you will be paid an upfront commission.
Based on a few major banks, upfront commission rates vary from 0.50% (+GST) to 0.7% (+GST), so for a $1,000,000 loan, you could receive up to $7,000 in upfront commission.
You’ll receive trail commission based on the balance of the loan as long as the loan is paid on time.
In most cases, the trail is 0.15% + GST p.a. paid monthly.
Trail commissions decrease over time as customers pay down their loans or pay them off entirely.
As a general rule, you can expect the trail from your loan book to drop by 1.5% per month.
So if you lent out $1,000,000 in a month you can expect to earn the following in trail:
- Year 1: $1,382
- Year 2: $1,153
- Year 3: $962
- Year 4: $802
- Year 5: $669
On that note, the ‘half-life’ of a trail book is generally around four years.
However, for that one $1,000,000 loan over the first four years, you could earn $11,299 in upfront and trail commission combined.
To give you a better idea of your earning potential, settling $3.5 million a month could see you earn $204,104 per annum.
Settling $5.5 million per month could see you earn $320,734 per annum.
Note that the trail income earned from that year’s work won’t be received in that year.
Also, there can be differences between lenders in the tiered remuneration structure for both upfront and trail commissions.
Check out the mortgage broker commission rates page for more information.
If you would like to know more about becoming a mortgage broker at Home Loan Experts, please email firstname.lastname@example.org.
The costs of being a mortgage broker
Despite the incentives, there are other costs involved in being a broker that are often overlooked.
You may be required to split commissions with a referrer and pay clawback for loans that are refinanced within the first two years.
It can also be difficult to predict the life of a loan so relying on a forecast of trail commission is unreliable at best.
Where PAYG and self-employed brokers really differ is how much they pay to keep their business up and running.
PAYG staff and contractors that work for a brokerage will typically have most of these expenses covered by the business.
However, if you’re purely self-employed, around 50% of your commissions will go into operating costs.
Generally speaking, mortgage broking is a labour-intensive business so wages for yourself and your support staff are the main expense.
These costs include:
- Rent for your business premises.
- Aggregator fees.
- Marketing and communications.
- Telecommunications and IT.
- Market data subscriptions such as RP Data.
- Travel costs and client entertaining (mobile mortgage brokers).
- External Dispute Resolution (EDR) Scheme membership such as the Credit and Investments Ombudsman (CIO).
- Professional industry body membership such as the Mortgage and Finance Association of Australia (MFAA) or Finance Brokers Association of Australia (FBAA).
- Insurance such as Professional Indemnity Insurance (PI insurance) and public liability insurance.
- Your education, training and professional development.
- The salaries of support staff and other employees.
Although the brokerage should cover a lot of these costs, some are better than others so it pays to do your research.
As a general rule, a sole trader mortgage broker will have a profit of around 50% of their turnover.
However, this can vary significantly depending on if you pay for advertising and how lean you run your business.
PAYG employee versus self-employed
The pros and cons of being an employee
- Stable income.
- Base income to provide a buffer during tough months.
- You’ll get sick leave and annual leave.
- Access to administration, IT support and marketing.
- Training and free mentoring.
- Few expenses.
- Your commission rate will be lower.
- Your employer will have more contractual control so potentially less flexible work hours.
When working for a brokerage, there are support staff and processes in place to help handle what is your core business: providing home loan solutions.
The pros and cons of being self-employed
Expenses are typically four times more than expected and small expenses can add up.
- Potential for higher revenue.
- Greater autonomy over working hours.
- Greater tax benefits.
- You have to hire, train and manage your own staff including IT and support staff.
- You have to do your own marketing and communications to attract leads.
- It can be a lonely working environment and difficult to learn from others.
- Ultimately, you have to wear many hats such as accounts, manager, marketer, salesman, loan processor and HR.
- Higher revenue but not necessarily higher profit.
How to get set up as a broker
Broker study and training
The first step in becoming a mortgage broker is to complete a Certificate IV Finance and Mortgage Broking [FNS40815].
The requirement is set out by ASIC in Regulatory Guide 206 (RG 206) Credit licensing – Competence and training.
Bear in mind that the aggregator and the professional industry body you join may require you to have a Diploma of Finance and Mortgage Broking Management [FNS50315] as a minimum.
For example, the MFAA requires a Diploma as part of their minimum education requirements.
The MFAA and the FBAA used to have a “preferred vendor list” to complete your course but you can now complete the courses at any Registered Training Organisation (RTO).
Completing your certificate and diploma will come at your own cost and vary depending on the RTO you choose.
Luckily, the brokerage you work for may partner with an RTO which means you may get a discount.
To give you an idea, below are the costs that apply with the National Finance Institute (NFI):
- Cert IV: $1,295
- Diploma: $1,145
As a general rule, you have up to 12 months to complete both the Cert IV and the Diploma or 6 months for each certification if you complete this by distance education.
We find most people complete the course much faster if they attend a workshop instead of doing a distance education course.
You can complete each course as fast as you want as you continue your training in the brokerage.
- Cert IV: 3-day workshop depending on the training provider and typically delivered in a small group. During this time you’ll be guided through the learning material.
- Diploma: 2-day workshop with similar delivery.
If you’re unable to find a local RTO, distance learning (correspondence) and online learning (at home study) options are available.
Note that recognition of Prior Learning (RPL) discounts are available to credit officers and other mortgage industry professionals.
Once you’ve complete each certificate, provide a copy to your brokerage manager if you’re PAYG or your aggregator if you’re self-employed.
Complete a credit history check
The aggregator and the industry association you join will ask for this as proof that you’re of good character.
You can request a credit report check from Equifax.
- Cost: $79.95
- Turnaround time: Up to 10 business days
If the company you are working with has a subscription with Equifax, they can complete a report on the spot if you sign their privacy declaration.
To get your credit licence, ASIC and the association you join will also complete a bankruptcy check via the Australian Financial Security Authority (AFSA) Bankruptcy Register.
You won’t have to cover this cost.
Complete a police history check
Under ASIC’s financial services licensing requirements, you’re required to get a ‘Class 25 Federal Police Check’.
This is a specific requirement for obtaining your Australian Credit Licence (ACL) or to become an Australian Credit Representative (ACR) so it’s a little different to a standard police check.
This will cost around $42 and you need to allow about a week before you receive it.
Apply for EDR membership
You need this before applying for membership with an industry association.
If you’re operating directly through an aggregator or you’re a self-employed contractor, you’re required to join an External Dispute Resolution (EDR) Scheme.
This falls under the requirements set out in Regulatory Guide 165 (RG 165) ‘Licensing: Internal and external dispute resolution’.
If you’re a PAYG broker, you can simply be added to your brokerage’s membership so you can avoid the costs.
If you’re self-employed under your own ACL, the fees for each EDR will vary slightly.
- CIO upfront and ongoing fee: The upfront fee for an ACL holder is $350 with an annual fee of $140.
- FOS upfront and ongoing fee: The upfront fee is $165 with an annual fee that varies depending on when the application is made. You should check the FOS website for the current fee schedule.
- Turnaround time for each scheme: Allow around 10 business days.
Apply for Professional Indemnity Insurance (PI Insurance)
You cannot join an industry body without sufficient PI cover in place.
If you’re a PAYG broker, you can simply be added to your employer’s policy.
PI will protect you and your business against claims for any financial loss your clients incur as a result of your services.
For mortgage brokers, this refers to events where you make an error in a product recommendation after assessing a client’s situation.
In this way, you can protect yourself from potentially large legal costs and reputational damage.
Similarly, you need Public Liability Insurance (PL insurance) to protect against any bodily harm, injury or third party property damage that may occur when you undertake day-to-business.
For example, this could be a client injuring themselves in your business premises or office.
Typically, insurers offer policies that cover both PI insurance and public liability insurance.
We can’t provide you with a figure of how much the premium will be.
However, it’s important to note that ASIC requires you have a minimum of $2 million in aggregate and $1 million per claim of PI cover.
We suggest you speak to an insurance broker and find out what other cover you may need such as management liability and office and contents insurance.
Join an industry association
Once you’ve been approved for an EDR scheme and PI insurance, you need to become a member of a professional industry body.
This will either be the MFAA or the FBAA depending on the brokerage you join.
There can be slightly different fees between the two organisations but ultimately you should look at the unique offerings of each association and decide which better fits your needs.
Members of the industry have argued that the requirements of the MFAA are quite stringent when compared to the FBAA, specifically that the MFAA requires you to have a diploma to become a full member whereas the FBAA only requires a Cert IV.
However, under the MFFA Mentoring program (more on that below), you don’t need to hold the Diploma in order to join.
However, you do need to be enrolled and complete it over the first 12 months.
At any rate, joining either organisation is fairly straightforward and requires you to provide a copy of your Cert IV, PI insurance, CIO membership, criminal history check, credit check and basic forms of ID.
To give you an idea of the costs:
- MFAA: $470 (plus the ‘MFAA Initial Compliance Pack’ at $215).
- FBAA: $420.
- Different fees may apply for companies and employee memberships.
It’s important you check each association website for up-to-date pricing.
Once your membership is approved, provide a copy to your aggregator or employer.
You need 100 points of ID
Once you have your certificate and professional body membership, you’re ready to join a brokerage.
To sign up to a brokerage and their aggregator, you have to provide 100 points of identification:
- Birth certificate.
- Citizenship certificate.
- Current passport.
- Drivers licence.
- ID card.
Set up your Australian Business Number (ABN)
Note: If you’re an employee, you do not need an ABN to become a mortgage broker.
You should get financial advice before setting up as a self-employed contractor or if you’re working as a sole trader directly through the aggregator.
It’s important to understand that you’re responsible for paying your own tax, GST, superannuation and workers compensation insurance (if you have staff).
You also won’t be entitled to sick leave, annual or long service leave.
To register for your ABN, you can do so yourself but you could be facing a 28-day waiting period.
To speed up the process, enter your Tax File Number (TFN) when registering online.
Better yet, apply for your ABN through your accountant from the start.
Sign the sub-origination agreement
The aggregator or sub-originator contract is the agreement you have in place with the aggregator.
It sets out the terms and conditions of upfront and trail commission rates and membership fees.
Membership fees can be anything from an annual fee or a percentage cut of your trail commission per year.
You have the right to seek legal advice before you sign.
Discuss the terms with the licensee and understand that the agreement can be negotiated.
Do I need an Australian Credit Licence?
Since 1 July 2010, anyone wishing to work as a mortgage broker is required to obtain an ACL or become an authorised credit representative (ACR) of a licence holder.
What’s the difference between the two?
You need at least two years finance experience and meet additional requirements with ASIC in order to qualify for an ACL.
The obligations of an ACL holder are beyond the scope of this article.
At any rate, you generally need to work as an authorised rep for two years before you can apply for an ACL.
PAYG brokers don’t need to become a credit rep – they’re automatically covered with their employer along with the costs.
We strongly recommend you seek advice from a professional before applying for your own licence after this period.
You need to have your EDR membership, PI insurance, Cert IV, criminal history check and credit check before you can apply for an ACL or become an ACR.
On the other hand, if you’re self-employed and operate via a company or trust name, your company or trust will be appointed and you will need an ASIC login.
Your company or trust can then sub-authorise you or other mortgage brokers.
If you’re operating via a trust, ASIC will ignore the trust so just put the trustee company in your application.
The upfront fee will be $512.
The annual compliance fee varies depending on how much you settle in a financial year.
For example, if you’re a sole trader and settle less than $100 million over the financial year, you’ll be charged $512.
This increases to $1,136 for settled loan book in excess of $100 million but less than $200 million.
Please refer to the ACL fee schedule on the ASIC website for more details.
Under proposed changes to ACL licensing fees, ASIC has suggested that brokers should be required to pay a levy rate plus a nominal fee per $10,000 on referred loans totalling more than $100 million.
Choosing an aggregator
What is an aggregator?
Aggregators also go by the name “franchisor” or “dealer group”, although “dealer group” is used more commonly in the financial planning industry.
An aggregator is effectively the middleman between the bank and the broker.
They usually provide software, access to lenders and commission processing functions. Some will also provide a brand, leads and training.
They are the third party channel which means the lending panel of a brokerage is actually the lending panel of their aggregator.
The average aggregator has between 15-40 lenders on their panel.
Why can’t I just access these lenders myself?
The reason is that lenders have significant volume and compliance requirements that the average mortgage broker simply wouldn’t be able to meet.
Banks are effectively providing the home loan product for your client so they want to know that the broker is bringing in qualified borrowers on a regular basis.
Apart from providing you with access to various lenders and products, aggregators:
- Manage the upfront and trail commission payments so you are paid on time and in full (best case scenario!).
- Provide Client Relationship Management (CRM) software so you can manage your business.
- Host professional development days, or Continuing Professional Development (CPD), to help you meet continuing educational requirements of your industry body.
- Provide Business Development Manager (BDM) support so you can continue to grow your business.
- IT support.
- Compliance support.
In order to join an aggregator, you need to have at least two years industry experience in most cases.
On the other hand, it may be easier to become an employee of a mortgage broker who is already a member of an aggregator.
Of course, different aggregators suit different business models and offer varying levels of support.
That means there can be significant differences in the cut they take from your commissions to fund the support and services they offer.
Who are the biggest aggregators in Australia?
The MFAA has an approved list of aggregators that you can check out.
Some of the biggest aggregators in Australia include:
- Astute Financial Management Pty Ltd
- Australian Mortgage Brokers Pty Ltd
- Choice Aggregation Services
- Connective Group Pty Ltd
- eChoice Home Loans Pty Ltd
- Finconnect (Australia) Pty Ltd
- Finsure Finance & Insurance Pty Ltd
- L J Hooker Financial Services Pty Ltd
- Loan Market
- Mortgage Choice Limited
- Mortgage House Pty Limited
- PLAN Australia
- Vow Financial Group Pty Ltd
- Yellow Brick Road
What should you look for in an aggregator?
There are many brokers that question the benefit of working with an aggregator.
The reason is that some aggregators have either not invested enough back into their support and services or they haven’t articulated their value proposition well.
Back in the day, aggregators offered little or no service outside of administering commissions.
However, the fact is that finding a suitable aggregator is the single most important thing a new mortgage broker should do when setting up.
When it comes to aggregators, the top three most important things to a broker are being paid commission on time and in full, choice of lenders and products, and compliance support (‘2016 Aggregator Roundtable’, Mortgage Professional Australia (MPA)).
Compliance support, in particular, has become more important than ever in a highly-regulated environment.
What else are brokers demanding from their aggregator?
Good commission management:
- You want to be paid in full and on time.
- Some aggregators have a “no orphan commission” policy, which means any commissions are paid out and no unclaimed commissions are allowed to stay on the book.
- You really want to ensure you’re getting bang for buck and actually benefiting from the buying power of joining a large group. The overall preference for commission split structures makes sense.
- Also, consider the fact the flat-fee structures have more appeal for high-performing brokers (financially speaking).
Lending panel and products:
- Generally speaking, the wider the product selection, the more likely you are to not lose clients to other brokers.
- Some may only offer residential lending products.
- You should consider an aggregator that has access to commercial lending products like asset finance.
- Some aggregators have a non-exclusive arrangement which allows you to make direct agreements with lenders that are not on their panel.
- Some aggregators are owned by private businesses and others are owned by major banks.
- This may or may not have an impact on the lenders and mortgage products available.
Technology and support:
- Their CRM software should actually make it easier to manage clients.
- Developing and maintaining software can be expensive so you should ask what their plans are to invest and improve their technology.
- Good tech and admin support is crucial.
- The importance of IT and CRM support rises with a broker’s annual volume as a result of the need to manage a higher number of incoming leads.
Training and professional development:
- Find out how many CPD days they hold every year.
- The cost should be covered by your membership.
- They should be MFAA or FBAA-approved programs about specialist lending areas such as SMSF and commercial lending.
- Personalised BDM support particularly when it comes to negotiating with the bank on commission rates.
- Website and lead generation tools.
- Tips on generating referrals.
- Guidance on how to remarket to existing customers and the tools to do so such as having a great CRM system.
Beware of empty promises!
The first thing to be cautious of are the terms around client ownership terms and the continuity of trail commission payments, particularly if you leave the aggregator.
We recommend seeking legal advice before signing the sub-originator agreement.
Secondly, consider an aggregator that charges a yearly fee rather than takes a percentage of trail.
This annual fee shouldn’t increase significantly on the back of compounding trail.
Next, ask whether the aggregator is helping you to diversify.
Sometimes diversifying into other niches or markets is a necessity, such as when some markets come under regulatory scrutiny and see lenders pull back from lending.
Examples of this include foreign buyers and investors.
Sometimes it’s a matter of tapping into markets with fresh opportunities.
For example, commercial and business lending has been notoriously difficult for brokers to get a foothold in because of CRM limitations and the pain of the manual nature of the application process.
Beware of aggregators that avoid innovation in an always-changing financial services environment.
Aggregator fee structure
There are two basic fee structures for aggregators:
- Capped fee per deal: This is a capped monthly trail fee based on the loan amount. This fee structure earns the aggregator so little revenue that it struggles to provide any genuine service other than commission administration.
- Percentage of upfront and a percentage of trail: This can be quite lucrative for the aggregator so you have to question how much of that the aggregator is investing back into its service offerings.
Setting up lender accreditations
In order to access the home loan products available from the aggregator’s panel of lenders, you have to get accreditation.
This typically involves a training session and a test where a representative from the lender discusses the products available, the best way to pitch them to clients and the loan documentation required for each application type.
Typically, you apply for accreditation through your aggregator’s CRM:
- You have to fill in an application form.
- Provide all relevant documentation including MFAA and CIO membership (or equivalent) and a copy of your PI insurance policy.
- Set a reminder to follow up in two weeks.
- Most lenders will require you to complete a training session and a test.
- Some lenders will only accredit you unless you have 2 years experience but if you’re working for an accredited brokerage with an ACL, this requirement can be waived.
Industry bodies the MFAA and the FBAA require all new brokers to be mentored for the first two years of practice.
That means finding a helpful and connected aggregator is one of the critical early decisions you need to make in your broking career.
Being in a good mentoring program is one of the greatest tools in your arsenal if you’re looking to be the best broker you can be and rapidly grow your own business (repeat and referral customers).
You can spend as little or as much as you want on mentoring but the MFAA provide a pretty good guide on their website.
Mentoring can teach you:
- How to write a mortgage broking business plan.
- How to set goals.
- Manage your time and priorities.
- Marketing and advertising.
- How to create long-term client relationships (good for generating referral and repeat business).
Check out MFAA’s Accredited Mentor list to find a mentor.
Keep in mind, mentoring can be quite expensive, in some cases, in excess of $20,000 for two years!
There’s no guarantee that your mentor will do a good job so complete reference checks and get to know them before you proceed.
If you’re an employee, mentoring is usually included as part of your employment package.
Resources for new brokers
How to find leads
A good brokerage shouldn’t leave you wanting for leads but here are some basic rules for finding them:
- Internet marketing.
- Your own networks such as family and friends.
- Repeat business.
- Referrals including from existing customers, accountants, real estate agents/buyers agents and conveyancers/solicitors.
- Social media.
- Hashching, a central network where borrowers can find qualified mortgage brokers directly.
- Through your aggregator.
Personal recommendations, in particular, are enormously important to borrowers when selecting a broker.
In fact, around 40% of consumers rely on these recommendations, followed by 22% that rely on professional recommendations (‘Consumers On Brokers’,1 June 2016, MPA).
That means Australians trust their family and friends more than a recommendation from a conveyancer, solicitor or a real estate agent.
This is particularly true of high net worth individuals.
Other the hand, cold marketing, such as cold calling or an ad in your local paper, can be “hit-and-miss” at best.
In fact, most leads are terrible quality with around 80% of your marketing losing money.
At Home Loan Experts, we use very intelligent marketing that’s laser-focused on specific niches and is designed to generate high-quality leads.
- Home Loan Experts: Our industry-leading website covers home loan lending policies and provides guides, tools and calculators to specific niches.
- MFAA CPD activities: This schedule explains how MFAA members are required to maintain at least 30 hours of CPD hours per year.
- FBAA Mortgage Broker Training Centre: The FBAA is a partner of two of the largest RTOs in Australia.
- Connective: One of the leading aggregators in Australia with almost 40 lenders on their lending panel.
- Scott and Broad: Insurance brokers that provide tailored PI, public liability and other insurance solutions for finance professionals.
- The Adviser: Covers the latest news and provides insight into current issues affecting the mortgage broking and banking industry.
- Mortgage Professional Australia (MPA): Covers the latest news and provides insight into current issues affecting the mortgage broking and banking industry.
Key industry stats
Mortgage broking snapshot
During periods of low interest rates, the demand for mortgage brokers soars because the banks are desperate for more business.
For the past few years, the MFAA quarterly report has consistently revealed that brokers originate more than half of new residential home loans.
Similarly, annual growth from 2012 to 2017 has been around 6.8% (IBISWorld, January 2017).
The ‘2015 Mortgage Broking Benchmarking Report’ by Macquarie also suggested that the industry has matured, marked by an increase in the number of brokerages or franchisees with more than 2 staff.
Borrower market breakdown
According to ‘Observations on the value of mortgage broking’ by the MFFA (May 2015), the borrower market is broken down into:
- Investors: 40.5%
- Owner-occupiers: 37.0%
- First home buyers: 14.0%
- Commercial borrowers: 6.0%
- Other: 2.5%
What is driving profits in the broking industry?
Macquarie’s survey found that the biggest factor in increasing revenue is from referral business (65% of individual brokers), followed by referrals from referral partners such as real estate agents, conveyancers and accountants (52%).
Reasons for decreased profits are driven by deteriorating market conditions (49% of respondents) and cost increases (45%), with increased competition at 30%.
The costs of doing business can skyrocket during periods when economists and regulators perceive a housing bubble.
Competition among mortgage brokers
There are over 17,500 mortgage brokers in the industry (‘Mortgage Brokers in Australia’, IBISWorld, January 2017).
The latest state breakdown estimates from the MFFA are as follows:
- NSW: 35.4%
- VIC: 27.9%
- QLD: 15.7%
- SA: 7.0%
- WA: 13.0%
- TAS: 0.6%
- NT: 0.6%
There is a lot of competition out there!
Luckily, many of the ‘cowboys’ of the industry, or brokers who have consistently broken compliance rules and have generally been unethical, are being forced out of the industry thanks to the regulatory framework provided by ASIC.
On top of that, it’s estimated that around 17% of all brokers in Australia didn’t even settle a new loan over the 6-month period from March to September 2015 (‘Industry Intelligence Service (IIS) Report’, MFAA).
This suggests that there is a good majority of registered brokers that are “dormant” or part-time.
Threats to the industry
According to ‘Observations on the value of mortgage broking’ by the MFFA [May 2015]:
- Consumers prefer online banking and lenders are always investing in new technologies to enhance the customer experience.
- Broker commissions are under scrutiny by ASIC and customers may be unwilling to accept a fee-for-service model.
- Consumer demand for a single product to cover all of their financial needs has created revenue concentration in a handful of products.
What makes a good brokerage?
According to Macquarie’s survey, by far the most important thing to a broker was what the brokerage was doing to actively manage its existing client base (72%), whether it was through automation or admin support.
The next most important thing was the brokerage’s ability to clearly articulate their value to clients through effective marketing and communication such as sales scripts (48%).
Satisfaction with aggregators
- IT support: 82% satisfied.
- Help with compliance: 80% satisfied.
- Training – both business management of personal development, credit and loan writing: 75% satisfied.
- Software: 73% satisfied.
- Lead generation: More than 50% were either not satisfied or very unsatisfied.
What do Australians really want from brokers?
Although they see brokers as having a wider range of lending options, consumers don’t necessarily see brokers as having complete independence or impartiality (‘Observations on the value of mortgage broking’, MFFA).
When rates rise, the after-settlement services that a broker can provide really count.
Around 40% of respondents in MPA’s ‘Consumers On Brokers’ survey said they haven’t been contacted by their broker since settling their loan and over half weren’t notified when interest rates increased.
Further to this, 60% said they would like to be contacted more regularly but it has to be timely and relevant to their situation, not just generic e-newsletters.
This is where great brokers can really shine and build a good reputation in order to drive more business.
You have to ask what value you are providing post-settlement to justify trail commission.
What was really evident from the survey was that you had to earn the trust of your client.
Many said they were a little apprehensive when it came to the objectivity of a broker, with the perception that commissions would sway their judgement.
It was only after they had a great experience that they came to trust the broker.
But this certainly wasn’t at a group level, which is incidentally the reason why consumers prefer personal recommendations above all else.
What do brokers really think of banks?
According to MPA’s ‘Brokers On Banks 2016’ survey [7 April 2016], the major pain points for brokers included:
- The demand for faster turnaround times.
- More BDM support.
- More flexible credit policies so they could assist more clients.
- Opportunity to negotiate interest discounts.
It’s worth noting that many lenders, particularly the banks, have automated loan processing.
The problem is that bank staff are generally poorly-trained and don’t fully understand the role of the broker.
As a result, applications still get stuck in these automated systems.
This is why having a good relationship with a BDM is crucial in getting the application moving again.
How is Home Loan Experts different?
If you would like to know more about a mortgage broking role at Home Loan Experts, please email email@example.com.