Mortgage brokers increasingly dominate the Australian residential property market, now accounting for more than half of all new loans. At the same time, the entire mortgage lending sector is coming under increasing regulatory pressure amid concerns about record levels of household debt.

New technology stands at the intersection of these dual tectonic shifts. Whether it will be used to usurp the traditional broking sector or bolster its sales and advice remains to be seen.

Deloitte partner James Hickey, the co-author of Deloitte’s annual Mortgage Report, says the industry’s focus should be on making sure the quality of advice meets the level expected by consumers and the regulator.

“Technology is an enabler of that but the question is how can we meet and then exceed the quality of advice expected, rather than look to technology for faster turnaround times or a different engagement model – that may be in the future,” he says.

Technology can’t always replace people

Several new fintech platforms such as Lendi, Valiant Finance, LoanDolphin, uno, Joust and HashChing are now offering an online alternative to traditional mortgage brokers.

However, Deloitte’s research shows that borrowers still need to talk to someone given the complexity and length of the lending process.

“Digital can be most disruptive in a market where it can have a clear price difference for the customer or when it’s a relatively simple, commoditised product or service,” Hickey says, noting that brokers are paid via built-in lender commissions, meaning consumers don’t save money by shopping online.

The digital channel is still becoming increasingly important – but rather than replacing traditional brokers, it is becoming embedded in new education processes and supplementing existing businesses.

For example, REA Group, which runs property site realestate.com.au, bought an 80 per cent stake in mortgage broking franchise Smartline in June. The deal brought 300 brokers into the online business, which will launch its own realestate.com.au broking service and home loan products (in conjunction with NAB) later this year.

It represents a way to retain customers, which first interact with the business online, as they move through the mortgage process.

“It's a good example of where digital blends with the traditional mortgage broker advice part of the journey,” Hickey says.

Half of the 14 mortgage heads and lending experts who gathered to discuss the industry for Deloitte’s Mortgage Report 2017 said integrating digital into their front-end processes represents the greatest opportunity for the broker model to evolve in the next two years.

New regtech likely to be used by traditional brokers

Mortgage broking veteran Brett Spencer remains sceptical that online technology will radically re-engineer traditional mortgage broking – major mortgage aggregators such as AFG already incorporate innovative technology that allows brokers to sell efficiently.

He says online broking models have made limited inroads compared to traditional broking in the decades that internet use has been widespread.

“Just because it's not there doesn't mean there's a demand for it.”

However, with ASIC raising concerns about responsible lending practices, regtech remains an area that could strengthen traditional broking.

The recent ASIC Review of Mortgage Broker Remuneration raised concerns that brokers sell larger loans and more interest only loans than lenders, while also pointing out that too many lenders and brokers were not making sufficient inquiries into consumers’ expenses.

The regulator was particularly concerned that many lenders test consumers’ nominated expenses against a benchmark, such as the Household Expenditure Measure (HEM), rather than actual expenses.

“HEM is a conservative measure of expenditure, rather than a typical or average figure, which means that many consumers will have higher expenses than HEM,” the report said, although it also acknowledged that practices have since improved.

Spencer, who is also chairman of responsible lending platform provider Opica Group, says a deeper analysis is crucial for the mortgage industry.

“Will it mean lending will fall? Yes – even though this person qualifies under a lender’s model or benchmark, based on actual expenditure the customer can't afford the loan. That’s the true definition of what responsible lending really is.”

Australian household debt has skyrocketed to record levels as interest rates have fallen to new lows in recent years, prompting residential property prices in Sydney and Melbourne to quickly climb over the past five years.

Regtech provides opportunities to manage those ballooning risks before they become airborne. Further down the track, other innovations may also make the mortgage process smoother and more efficient for both borrowers and brokers. For example, title searches, online instant conveyancing and settlement could be integrated with brokers’ digital services to improve the customer experience in coming years.
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