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How the big four are holding sway over the mortgage market through non-branded subsidiaries

Currently, nearly 60 percent of residential home loans in Australia are now introduced by mortgage brokers who are known to offer convenience and choice to home borrowers in addition to transparent advice on choosing the right home loan product for their requirement.

However, it seems that borrowers need to tread with caution as the Productivity Commission’s draft report expresses concern over vertical integration in the mortgage broking industry. According to the report, lenders wield “significant influence” over aggregators, and lender-owned aggregators are of “greater concern” to the commission than independent aggregators.

 
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A recent report by ASIC on vertical integration conflicts in the industry that reviewed data from the subsidiaries of Australia’s largest financial institutions, namely, CBA, NAB, ANZ, Westpac and AMP, revealed similar concerns. According to the report, 68 per cent of all client funds across the reviewed businesses were invested in financial products owned and operated by related entities. This was despite the fact that over 75 percent financial products across the reviewed licensees’ approved product lists were external.


What does this mean for home borrowers?

In short, lack of choice and transparency for home borrowers. In fact, many borrowers don’t even know they are dealing with subsidiaries of big brands and often end up with ‘white-labelled’ loans that could be much more expensive than similar products offered by smaller lenders.

By controlling the majority of mortgage distribution channels, larger financial institutions are stifling competition in the mortgage industry. Take the example of the leading property website Realestate.com.au that recently introduced a home loan service through its website. However, hardly anyone knew of “NAB’s deal with Realestate.com.au to sell ‘white labelled’ (i.e. disguised) home loans through the property website.”

In case you are wondering, a white label loan is nothing but a home-branded loan, something like the home-branded biscuits you find at Coles. Note that Coles does not have a manufacturing unit but labels an existing unbranded product as its own to distribute it at a lower cost. Similarly, big banks sell their wholesale unbranded loans through third party lenders that brand these loans as their own and sell it to borrowers at lower rates.

In a recent article, The New Daily revealed several other examples of vertical integration that came as a surprise to many unsuspecting home borrowers. Starting with the most transparent of the big four banks, ANZ, notably, has only one separately branded subsidiary, OnePath, which it is planning to sell off to IOOF and Zurich. Westpac, on the other hand, has an array of separately branded subsidiaries, starting with the popular banks – St George, Bank of Melbourne and BankSA – that it fully owns. Talking about its sway in the mortgage market, Westpac holds majority ownership in Uno, an online mortgage broker that reveals no signs of its connection with Westpac on the website. Similarly, Aussie Home Loans, another popular home loan brand and mortgage broker is fully owned by Australia’s largest bank – CBA. Interestingly, you’d be hard put to find any CBA branding on the Aussie website!

The article goes on to say that over 80 percent of Australia’s financial advisers are controlled by the big four banks and AMP. Unfortunately, consumers can hardly tell apart independent businesses from lender-controlled ones due to lack of branding and transparent disclosure of ownership structures.


The way forward

In its draft recommendations, the Productivity Commission has recommended the imposition of legal duty on lender-owned mortgage aggregators to act in the consumers’ best interests. But, until such a regulation is imposed, home buyers must be extra vigilant while choosing the right broker to process their home loans.

As a first step, home borrowers should ask a mortgage broker for their credit guide to get clear information about the range of services offered by a broker apart from their fee structure, panel of lenders, industry associations, background, dispute resolution processes, etc. Besides, home buyers must compare various home loan products available in the market to have a fair idea of the ongoing rates and deals offered by multiple lenders. HashChing, an online mortgage marketplace, enables users to compare home loans from over 80 lenders across Australia. The broker pre-negotiated home loan deals start as low as 3.59 per cent per annum. To ensure accountability, each broker on the platform must maintain a minimum user rating of 4/5 to continue receiving leads.

Established to provide consumers free access to multiple home loan deals, information and tools to make confident choices, HashChing does not provide credit assistance or suggests its users to apply for a home loan with a particular lender. The platform only provides factual advice, without any bias, to help Australians own their home sooner by making better home loan decisions. If you are looking for a fresh home loan deal or planning to refinance your existing mortgage, start by comparing competitive home loan deals.

 
By Vidhu Bajaj,
HashChing Content Writer
 

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