Brokers drop 26% as value of loans written drops $2.7 billion

The number of mortgage broking firms operating in Australia has contracted by 26% in the year to March 2011 but lending activity has increased by 18%, according to new figures from Market Intelligence Strategy Centre.

The figures showed that there were 119 broker aggregators and firms, with the total value of mortgage business flowing through to those brokers dropping to $11.6 billion due to poor housing construction conditions and a weak economy.

That data comes alongside a separate report today from the Housing Industry Association which predicts the number of housing starts this year will fall by 14%.

The new figures from MISC Global Research show the number of brokerage firms dropped by a quarter, with the overall mortgage market falling by $2.7 billion.

“I think many of the core members of the industry would take the view this is a natural process,” a MISC spokesman said. “And that this is a fairly natural process of consolidation.

“We mustn’t forget that part of this consolidation is simply the merging of brokerage firms to bring about greater efficiencies, which is a normal process in the maturing of any industry sector.”

The report points out that the reduced number of firms coincides with the introduction of ASIC’s new credit reforms, which require brokers to become licensed.

“The new licensing regime….has established a more professional competitive broker environment that will augur well for the distribution channel that has helped many borrowers in the past,” the report says.

MISC says many brokerage firms have begun acquiring each other, which is a significant part of that 26% reduction.

As a result those that are writing loans have recorded an 18% increase in business “despite what were constrained mortgage market conditions”.

That 18% increase comes on the back of “an unprecedented competitive activity in the broker channel” with lenders offering discounts and new promotional products such as amended LVR rates and scrapping exit fees.

“One of the most important things to note here is that the initiatives of these lenders have clearly contributed to an increase in individual broker firm performance,” the report says.

The aggregate value of all mortgage business flowing through to the industry has dropped by $2.7 billion to $11.6 billion. MISC says that “comes in the context of poorer housing construction measures”.

“It’s a slowdown in mortgages,” a spokesperson says. “There is a general slowdown in mortgage demand and of course that has affected these companies.

“The important thing to note here is that many SMEs in this sector are fuelled by the construction industry and that’s obviously affecting them here.”