Broker mortgage ‘churn’ on the way down

THE rate of home loan ”churning” by mortgage brokers has slipped below that of the banks, suggesting that recent efforts by the big banks to rein in the brokers are working.

Mortgage brokers were criticised in recent years for pushing clients into costly refinancing of loans even when there was no net benefit. In response, many banks restructured commission payments to brokers to reduce the incentive to churn.

Brokers are estimated to account for about a quarter of the total mortgage market.

The latest data compiled by finance consultants MISC Global shows that at the end of September the rate of mortgages being refinanced with another lender accounted for 24.4 per cent of broker-originated loans. The rate of refinancing with banks was running at 35.9 per cent.

Refinancing as a percentage of total lending at the end of September was 28.5 per cent, according to Australian Bureau of Statistics data. The churn rate is also a good barometer of the health of the mortgage market as it points to the proportion of new borrowers to total loans.

ABS home lending figures for November surprised on the upside yesterday, rising by 0.9 per cent, despite interest rates having moved higher.

Separate MISC Global data shows that the average size of loans written through mortgage brokers of more $270,600 was slightly greater than loans written directly by banks, suggesting that investors were starting to return to the housing market.

The MISC figures also suggest that banks are starting to relax standards, with many of the big players again requiring as little as 5 per cent deposit on a house.

From late 2008, banks started lifting the minimum deposit level they demanded from customers to back a loan to more than 10 per cent. Mortgages backed by a higher deposit are generally regarded as less risky.

But, according to the MISC figures, during the September quarter Westpac pulled back the minimum deposit required of new customers to 8 per cent from 13 per cent. Others, such as ANZ and Bankwest, dropped the minimum deposit for existing customers to 5 per cent.

Credit union CUA has one of the lowest minimum-deposit requirements, with new customers needing the equivalent of only 3 per cent of the house purchase price to get a loan.

MISC said signs were emerging that smaller lenders were lowering their loan-to-valuation ratio in an effort to match the big banks.

Posted by Eric Johnston – The Age on 12th January, 2011