Australian banks may cut mortgage broker reliance to boost profitability

Driving customers to in-house channels could boost profitability.

Australian banks are expected to try and steer borrowers away from mortgage brokers to their in-house channels in their search for better returns, according to S&P Global Ratings.

Banks are reportedly heavily investing in their proprietary channels to regain ground from brokers, who originate around 60% to 70% of their new mortgage lending, said S&P credit analyst Simon Geldenhuys.

By driving more customers to in-house channels— like branches, call centers or, increasingly, digital channels— banks could boost profitability.

"Less mortgage origination through brokers, all else equal, means better returns for banks and potentially better pricing for borrowers," said Geldenhuys.

While many Australians still favor person-to-person interaction for the biggest purchase of their lives, a new generation of tech-savvy borrowers continues to embrace digital solutions, according to S&P.

"We believe banks will capitalize on this," said Geldenhuys. "By digitizing the mortgage process and offering greater price transparency, banks might dilute the mortgage broker value proposition."

Their efforts will materially impact our bank ratings in the next two years. That said, if they're successful, it could increase margins and ultimately profitability.

“This could shore up the already strong capital and earnings profiles of the Australia Banks," Geldenhuys added.