The findings come in a 47-page report from Deloitte Access Economics (DAE), titled The Value of Mortgage Broking, which looks at the evolution, growth and role of mortgage brokers in Australia, the economic impacts of broking as well as the consumer and lender value proposition of the industry.
Released today, the report was commissioned by the Mortgage Broking Industry Group (MBIG)* to undertake analysis of the value of mortgage broking “for the purpose of informing policymakers and the broader community about the role mortgage brokers play in the mortgage market and the economic contribution of the mortgage broking industry in Australia”.
According to Deloitte Access Economics director Mike Thomas, the report took six months to undertake.
It is based on an analysis of publicly available information, data collected through a nationally representative survey of 1,635 mortgage brokers (both independent and those working in a group), a focus group workshop with mortgage brokers and consultations with industry participants (National Australia Bank, Heritage Bank, Liberty Financial, AFG, Connective and Pink Finance).
Australian economic contribution greater than that of the dairy industry
One of the key findings of the report centres around the economic significance of the broking industry.
Analysis of data from the DAE survey results, as well as publicly available data from ASIC, IBISWorld and the MFAA, suggests that the mortgage broking industry contributed an estimated $2.872 billion to the Australian economy in 2017 and supported the employment of 27,144 full-time equivalent (FTE) workers.
The consultants outlined that the total accrual economic contribution of the mortgage broking industry in Australia is therefore greater than that of the dairy product manufacturing and motion picture and sound recording industries (both around $2.7 billion), while its employment size is equivalent to those in the electricity generation sector (25,800 FTE).
The Value of Mortgage Broking report goes on to break down the mortgage broking contribution to the economy on both a direct and indirect basis.
The Deloitte Access Economics report reads: “The mortgage broking industry directly generated $1.83 billion in wages [both commissions paid to brokers and support staff wages] and profits (gross operating surplus or GOS) and directly employed 20,297 FTE workers.”
According to the analysis, the $1.83 billion is made up of $1.49 billion in GOS and $346 million in wages.
The calculations were based on a range of assumptions, including that average broker commissions and wages paid (as reported in the survey) were representative of the entire industry, that the ratio of FTE support staff to FTE brokers is 0.5 to 1 and that 90 per cent of the sole-trading brokers are working full-time.
However, when part-time employees were included, the industry directly employed 22,215 people in Australia at the end of September 2017. This included approximately 14,230 active brokers and 7,985 support staff (including 870 employed by aggregators).
Looking at the “indirect economic contribution”, Deloitte Access Economics estimated that mortgage broking indirectly supported Australian businesses in other industries in the economy, contributing $1.04 billion in wages and profits ($428 million GOS and $610 million wages) and employing 6,847 FTE workers [in 2016–17].
“What surprised us was how much more important the mortgage broker’s role was”
Speaking to Mortgage Business, the DAE director said: “The ABS does not put out statistics just on this industry, so that is one of the reasons we put the survey out to industry — to gather the building blocks to work out what the economic contribution would be.
“This number includes single brokers working on their own, it includes mortgage broking businesses with a few brokers and maybe some support staff, and includes aggregators and the support that they provide. When you put that all together, you get an industry that contributes almost $3 billion a year to the Australian economy (based on 2016–17 measurements).”
Mr Thomas said that the size and contribution of the mortgage broking industry surprised the analysts.
“The surprises that we found were how big the industry was in terms of how many loans it was arranging. That data is internally available to the industry but is not widely publicised.
“The other one was that there are more than 27,000 jobs revolving around this large part of the financial sector. It isn’t just the 20,000 full-time equivalent staff working directly in the industry, but it’s the other 7,000 jobs that are created outside of the industry that support it. So, it is a great small business model and employs a lot of people and generates a chunk of GDP.”
He continued: “It wasn’t that there was new things [that surprised us] but rather how much bigger — or how much more important — the mortgage broker’s role was in certain aspects of the industry.”
The report also delved into research that looked at the impacts of broking on competition in the mortgage market, outlining that there are “clear quantifiable benefits associated with increased choice”.
It highlighted that variable interest rate levels across all lender types have dropped substantially from the early 1990s “in conjunction with the increase in the number of participants in the mortgage market”, which “put downward pressure on home loan interest rates and bank net interest margins” and has “generated significant social and economic benefits for the Australian economy”.
Other key findings of the report included:
- The mortgage broker channel drives competition among lenders, which helps reduce interest rates.
- About three in 10 mortgages arranged by brokers are for customers in regional and rural areas.
- Half of all home loans are originated by mortgage brokers, and this number continues to grow.
- More than 90 per cent of mortgage broker customers are happy with the service they receive.
- An average mortgage broker has 13.8 years’ industry experience.
- About 27 per cent of mortgage brokers are women.
- Brokers that are sole traders earn an average income after costs and before tax of $86,417.
- 64 per cent of brokers have education and training above their required qualifications.
- 70 per cent of a broker’s business comes directly or indirectly from existing customers demonstrating high levels of customer satisfaction.
Speaking after the release of the report, FBAA executive director Peter White told Mortgage Business: “For the first time, we are able to make some commentary around that value proposition of how many people brokers employ in the marketplace, what that means to the greater economy.
“We now have some research about the experience that brokers have [the survey shows it is an average of 13.8 years], how many are employed in the industry and what that economic value looks like. So, there are some additional pieces of data in here that, historically, was not something that we knew.”
He added that he hoped the report would provide a “much clearer, succinct understanding of what the industry really looks like”.
Mr White concluded: “It was intentional that we used Deloitte, a business of great significance, to sit in front of this report, because we wanted the independence to truly speak to what the market is like.
“It’s not a report of self-interest, which some reports have been, it is a concrete report that can be cited with great confidence given the research quality and the neutrality. We hope it will be a key piece of conversation in political circles, in mortgage circles, in the media and across the economy, going forward.”
Further, the CEO of the MFAA, Mike Felton, said: “The mortgage broker channel has made home loan financing cheaper for all Australians.
“While not only providing home buyers with access to more residential lending options, mortgage brokers have contributed to a fall in net interest margins of more than 3 percentage points over the past 30 years.”
*The MBIG was set up specifically to commission this report. It comprises the following companies: AFG, Astute Financial, Aussie, Choice Aggregation, Connective, FAST, Finance Brokers Association of Australia (FBAA), Loan Market, Mortgage & Finance Association of Australia (MFAA), Mortgage Choice, National Mortgage Brokers, PLAN Australia and Smartline.
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.