(F) mortgage broker advising homeowner

Do Mortgage Brokers Take Clients Away From Banks?

It may seem so at first, but let me put to you the answer is a clear NO.  Let me explain.

Of late we got some feedback that some lenders in the market feel that as much as mortgage brokers like ourselves bring them new businesses, we are also take away their existing clients from their backdoor through home loan refinancing or remortgaging, after all that is what we need to do in order to close a sale.  If there is no remortgaging, third-party or external mortgage distributors will be out of business.

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Let me first tell you what is the real problem here and trust me we are the best people to shed light on this matter, being on the ground constantly and hearing first-hand account of what clients are telling us.  When I was in business school, there was a saying “business management is really just common sense”, and we always retort back with “but common people don’t practice common sense”.  Guess what?  With all the technological advances businesses have made over the decades, when it comes to customer retention nothing much changes. Management always feel the pressure to deliver higher profits and they will have to set ever-higher sales or product targets every quarter and every year.  Just look at the latest Wells Fargo saga in the US.  As a result, most organizations financial institutions included just pay lip service to concepts like CRM, customer loyalty, customer lifetime value, etc.  You get the point.

The real issue is this – most clients tell us “it doesn’t pay to stay with the same bank”.  In fact one client got so upset by the whole experience and commented: “With all the high interests paid to the bank over the years without even looking around, I might as well just squandered all that on flying business class every year!  We just trusted the bank will give us good rates”.  His was a huge $2M loan. Most other clients also related how upset they were when they were offered higher spreads or interest rate than what was offered to new clients when they ask for repricing from their existing banks; all that after staying loyal to the same bank for the last 5 years.

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We are not trying to disparage any lender, who are all our valued partners.  To put in perspective, this is a perennial problem that plagues every company in any industry.  But we need our bank partners to understand our role do not “contribute” to this musical chair of switching mortgages every few years, we are just facilitating what is inevitable development in our opinion.  Consumer decisions and behaviours are changing rapidly brought about by the internet whether you talk about a sharing economy like Airbnb, Uber, etc, or that of comparison or rating sites like Booking.com.  Information is becoming more prevalent and transparent as consumers demand it real-time, and organizations that try to “hide” or hope their clients will just stick around and continue to pay the same price or higher inflated prices every year are just being unrealistic and engaging in wishful thinking.

When it comes to big-ticket cost items like mortgage interests, it is also quite hard to imagine someone who has just received a notification letter from his bank informing him of a rise in his interest rate and hence the higher monthly repayment amount from next month would just sit around and do nothing.  Gone were the days where one will need to make several trips down to different bank branches or make time-consuming IVR (interactive-voice response) hotline calls to check on latest mortgage rates in the market.  All the information is now available at the touch a button – competitive offers in a free market with various lenders vying for your loan in a lucrative mortgage business.

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On the contrary, a lender who is forward thinking and serious about getting commanding market share will need to make sure its brand is prominently displayed and ranked right at the top in all the places that their customers will go to in search of mortgage rates online.  Even for those who are not competing on rates, they need to make sure their salient product features are highlighted and well-explained and illustrated by proficient distributors.

So do mortgage brokers really take clients out from banks?  Think again.  Can the broker really convince a client to move if there is no good compelling reason to do so?  The real challenge therefore lies not in whether the bank choose to work more closely or not with external distributors, but how the bank responds to competitive offers in the marketplace and to this end the more so they will need the feedback and input from distribution channels.  To put it in another way, even if comparison sites disappear today, homeowners and investors will continue to seek out the best options available in the marketplace to save on interest.  And you can bet there will always be a bank out there willing to bend over backwards and offer a lower rate with legal subsidy in order to prise business away from the incumbent market leader. Such is the beauty of a free market economy where consumers will always be the ultimate winner.

In fact an intermediary like us play a very vital role in the whole eco-system of mortgage business which explains why in matured markets like UK over the last few years, mortgage origination from external mortgage intermediaries has grown steadily to contribute to 60% of total loans issued by banks.  Some of these roles we play include:

  • Educating homeowners or the market on the various mortgage pricing mechanisms and what are the key considerations in choosing the right mortgage, thereby better matching them to the right product (indirectly leading to higher satisfaction with their lenders). There is no one-size-fits-all solution depending on one’s outlook, personality, loan size, switching costs, motivation to sell, etc.
  • Reducing huge efficiencies or waste in the industry where most homeowners without advisor apply to more than a few banks at the same time due to lack of knowledge on which package to choose.
  • Offering lenders an efficient distribution channel where they only need to pay when an loan application is successfully approved and accepted thereby reducing fixed overheads.
  • (Contrary to what lenders thought) Helping ensure higher customer retention rate for lenders right from the outset by matching the right customer to the bank thereby increasing the chances of the customer staying on even after his lock-in period expires, eg.for those with smaller loans our advice is not to go for fixed rate but a more stable DMR (Deposit Mortgage Rate) package as the costs of switching banks every few years will wipe out all potential interest savings in switching.

At MortgageWise.sg, we seek to provide thought leadership in the area of mortgage planning in Singapore, taking deep dive into developments and news on mortgages & helping clients track interest rate movements.  We do not just go for one-time business with clients but rather choose to build long trusting relationships by giving truly independent advice to the extent of losing the deal.  We strive to become the first-choice mortgage partner for homeowners and the creditable distributor of mortgage products for banks and financial institutions in Singapore.

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