Comparison sites for mortgage rates have sprout up in recent years not just in Singapore but across many developed economies as internet and technologies make information more transparent and readily available and in so doing cause the allocation of resources to become more efficient. Put it in another way that most people can relate to – it causes demand and supply to be matched more perfectly in real time just like how Uber has changed the taxi trade. When someone has a need for moving from point A to B, he finds the best supplier to do that in the shortest time and at the best rate.
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Unfortunately banks still to a large extent fail to recognize this changing shift. They still very much rely on the traditional concept of hiring a sales force (be it branches or mobile team of mortgage specialists), incentivise them through various commission schemes and continue the old school approach of “peddling products” with the highest margin to the client. That has been the way in the beginning and still very much the “modus operandi” of how banks sell its retail products today be it mortgages, investments or insurance.
At the root of the issue is the failure to recognize how internet and social media has empowered consumers of today to make well-informed decisions. As a result most banks in Singapore fail to capitalize on the more efficient & in fact more effective channel of mortgage distributors to gain a strategic advantage. Let me give you an example to explain.
When someone searches for home loan on their own now, they typically call up 2 to 3 banks to ask for quotes, some might talk to more. In order to win over the customer, every banker sells hard on why their package is more superior than the rest. In the end, most homeowners would be either confused or undecided between on 2 or 3 packages that he has shortlisted and since he is preparing all the documents he would typically proceed to apply to all 3 banks and see who would approve his loan first before he makes a final decision. Imagine all the resources from the bank that go to waste in “selling” to this one client, from the sales pitch, followup, application form printouts, documents check, credit processing time & costs, to the final approval, not to mention the opportunity costs of servicing another, when the client finally decides to sign with a different bank. Of course the client can only sign with one lender in the end.
This situation is somewhat akin to the frustration experienced when one tries to buy condo Singapore and search for properties online. No matter which website one uses for the search be it propertyguru, iproperty, edgeproperty, 99.co or STProperty, there are just so many duplicate advertisements for the same unit across multiple channels. Will it not be wonderful if there is a system where all the listings shown are unique and singular in nature? What home buyer will then need to do is to really focus on choosing the best unit that suits his liking and budget, cutting away all the inefficiencies in the sales and marketing process.
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To translate that back to our mortgage industry, what it takes is for lenders to recognize the power of mortgage distributors or brokers as an independent and efficient distribution channel that cuts away all the waste. Instead of having 3 different bankers market and sell to the same client who will always perceive them to be biased (as they work for only one bank), why not let mortgage distributors do all the explaining and selling and let them direct the client to the most befitting package. In a way they become like “extension sales force” for the bank, remunerated only when a sale is closed. Lest I sound too self-serving, let me put to you this is a winning propostion for all parties involved as:
- The client gets the convenience of accessing all the various banks’ rates through a one-stop shop, and the expert and impartial advice from a mortgage consultant who is familiar with the features and workings of every bank’s loan packages, yet retains the overview of what works best in the interests of his client.
- The lender could then focus on what it does best – lending, ie. credit processing and all the systems and paperwork involved to set up the loan and get it going. In fact smart lenders are those who would then dive deep into market intelligence and product development harnessing feedback from the distribution channel (what sells and what does not), improving internal processes and pass those savings back to the client in the form of lower rates or unique loan features.
- The intermediaries in this case, the mortgage distributor like us, after being assured of a fair and equitable distributor fee, gets compensated for the work done as an “extension sales force” and focus on upgrading his product knowledge and giving the best service and advice to the client and works with him for the long haul over his entire loan duration of 20 to 30 years.
There are 3 related misconceptions I need to clarify here:
1. Do mortgage distributors not choose to sell the loan package that pays the highest distributor fee against the interest of his client?
At the moment some lenders do pay more for certain packages and less for others. At MortgageWise we do not recommend based on how much is this distributor fee, in fact there are instances where the bank is not paying at all and we have no choice but to ask our clients to go approach the bank directly for that package. Those who have corresponded with us can testify to this fact. Our belief is in “paying forward”. If we do the right thing in always putting the client’s interest first, we will be rewarded, with more clients later on, indirectly. If this maxim turns out to be wrong, we will be put out of business and I can only say what a shame that would be. It will be a loss to the banking industry where inefficiencies will return and inaccurate or “mismatching” of mortgages will happen. It is to me a step backwards for modern and advanced economy like Singapore. I hope not.
Incidentally on the conventional view of incentivising sales people to sell higher margin products, we think that may not be the best strategy in the internet age if one dives deep into the issue. That is old school thinking. Banks really should sell on the strength of their brand, the intrinsic features of the loan, and product bundling to create more customer “stickiness”. Instead of paying varying commissions be it to internal sales force or external distributors, it could pay a standardised fee that is fair and equitable to compensate sales people for the time and effort involved in explaining and helping clients choose the best loans, and focus on competing in terms of product features, service experience and occasionally competitive pricing. That way sales people would move away from “distorted selling” and bring about higher customer satisfaction in the long run; banks would also be forced to work harder to differentiate their products and come out with “winning” features. Sales people who still sell or “peddle products” based on how much commission is paid for that package are short-sighted, old school, and in it for one-time deal only. They fail to value client relationships and customer lifetime value. We work with bankers who share in the same philosophy as us.
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2. Homeowners will always choose the loan with the lowest interest rate so lenders can just compete on price alone and remove all additional costs to make more profits.
Prima facie that seems to be true and logical. However I can tell you from the many sessions we have conducted with our clients over the span of last 2 years, it is not so simple. There are different considerations when it comes to loan features like lock-in period, ability to refinance later on, being premier customer of a particular bank, etc. which may sometimes outweigh benefit of going for the lowest rate. Even on fixed rate packages, we have clients who pay a premium to go on longer 4 to 5 year fixed rates rather than a cheaper 2 year fixed. How do you explain that? There are idiosyncratic objectives and differing perspective on the pace of rate hikes, the crux is to match the client with the best possible loan options out there from someone who knows the entire marketplace’s offerings.
If that theory is true then what mortgage banks need to do is simply trim all costs down and charge the lowest interest rate possible to win market share. In fact that seems to be strategy for a while with local banks matching one another for the lowest fixed rate. However as much as that could be good news for homeowners myself included, I am sure banks do not want their mortgage product to be downgraded to “commodities” with no differentiating factor. They will then not be able to command a premium and increase their interest margin without losing business.
3. As much as mortgage distributors bring new businesses to one lender, he also takes away perhaps an equal amount of business away from the same lender through refinancing?
Again this could be true. However remember we simply exist as a channel of distribution that helps bring more efficiency and transparency to the marketplace. If a lender’s product or pricing is not competitive to start with, sooner or later, through the advent of more disruptive technologies there is no where to hide and a well-informed client will choose to move his business to another lender that gives him better pricing or greater value. It is entirely up to the lender to offer its existing client a good package in order to retain him. Sadly, not just in banking, we see most companies fail to value their existing clients more than they pay to get new clients.
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 home loan products for banks and financial institutions in Singapore.