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.
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 firstname.lastname@example.org.
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? (Source: 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 5-10 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 (minor exceptions can be made).
- Clear credit history (minor exceptions can be made).
- 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, bank statements and identification. You’ll need to learn how to read a variety of documents.
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 a divorce.
- Releasing 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. In fact this is the number one complaint in the mortgage broking industry.
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. If the customer calls you for an update then you haven’t communicated as often as they would like.
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 their rate, assessing if their current loan is still suitable or rengotiating their rate discount.
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.
Mortgage broking isn’t an easy road to riches though and the way you are remunerated can be quite complicated and vary signficantly.
Check out mortgage broker salary expections to learn more.
The costs of being a mortgage broker
Despite the incentives, there are other costs involved in being a broker that are often overlooked.
These costs can range from set up costs to meet regulatory requirements, to ongoing costs around business operations.
Where these costs really vary is between self-employed and PAYG brokers.
Learn more on the costs of being a broker page.
PAYG employee versus self-employed
New brokers considering whether to start their career as a PAYG employee or to go it alone as a sole trader often way up the benefits of job security versus the unlimited potential to rapidly grow their income, respectively.
Unfortunately, many fail to consider the upfront and ongoing costs associated with being self employed versus having a base salary and working for a mortgage brokerage.
There are many key elements you need to factor in before making decision and getting advice is crucial.
Check out the ‘Should I Be A PAYG Or Self Employed Mortgage Broker?’ page where we list the pros and cons of each employment model.
How to get set up as a broker
The steps are as follows:
- Broker study and training
- Complete a credit history check
- Complete a police history check
- Apply for EDR membership
- Apply for Professional Indemnity Insurance (PI Insurance)
- Join an industry association
- Provide proof of your identity
- Set up your Australian Business Number (ABN)
- Sign the sub-origination agreement
- Get an Australian Credit Licence (ACL)
- Choose an aggregator
- Set up lender accreditations
- Get a mentor
You can find a comperehensive breakdown of each step with our essential guide ‘How To Get Set Up As A Mortgage Broker’.
Resources for new brokers
How to find leads
Did you know that around 80% of your marketing efforts end up losing money?
Often times brokers are good at generating new business but have no idea of how to retain business (repeat customers) or how to ask for referrals.
Most of the industry is also woefully underprepared for the challenges of internet marketing.
It’s a technology that can allow you to easily expand your reach.
However, target the wrong audience and your value proposition can fall on deaf ears and you could be spending thousands on unqualified leads or no leads at all!
Generating good quality mortgage broker leads is daunting but there are a number of strategies that you can employ from today.
Better yet, why not join us?
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 ‘2018 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%
These figures can vary with the market. For example when APRA cracked down on investor lending in 2016 we saw investors drop to be 30% of the market.
Similarly in 2018 we saw the number of first home buyers fluctuate in each state due to a cooling property market in Sydney and Melbourne and rapid appreciation in Hobart.
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. In 2018 the increasing cost of regulation had a major impact on most brokerages and aggregators.
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.
- Increasing regulation and auditing. Particularly for living expenses and interest only loans.
- 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.