The Hidden Costs of Mortgage Brokers

Exorbitant broker commissions cost Australian home buyers a massive $1.8 billion a year, according to InfoChoice estimates. This figure is what inspired QuickDirect to enter the market and put an end to the behind-the-scenes arrangements between banks and brokers and to pass on savings directly to borrowers.

Denis Orrock, InfoChoice General Manager said, “On a $250,000 home loan we estimate brokers are paid $1,388 a year. With nearly 40 percent of existing mortgages sourced through brokers, this represents a total cost of $1.8 billion nationally. This cost is set to rise this year with almost 50 percent of new mortgages being sourced through brokers. While they may offer some benefits, consumers need to realise these do not come free and nor are they cheap. With housing affordability at an all time low, this is a cost most Australians can ill afford!”

“Brokers get around this by telling customers commissions are an expense covered by the bank or loan provider and whilst ‘technically’ true, in reality these costs are factored into loan pricing and ultimately the customer pays through higher interest rates and fees,” Orrock continued.

People getting their home loan through a bank aren’t better off either; banks still need to factor in mortgage broker commissions when setting their prices, which means their customers still end up paying the cost.

“What’s remarkable at the current point in time is that some lenders are talking about increasing interest rates to cover the cost of more challenging capital market conditions. It appears that the consumer will be left to foot this bill while lender and broker margins remain intact.”

New online mortgage provider, QuickDirect, was established to give people shopping for a mortgage an alternative to banks and brokers. Hamish Carlisle, founder and managing director of online mortgage provider QuickDirect said, “Throughout my career, including my time as head of the banks’ research team with Merrill Lynch, I have been continually amazed by the level of confusion caused by banks and brokers within the Australian mortgage industry. Much of this confusion serves to justify the high rates and fees charged.”

QuickDirect does not pay broker commissions, plus because it operates online via www.quickdirect.com.au rather than through branches or mobile lenders, can keep operating costs low. This translates into great savings for borrowers.

Carlisle continued, “Much of the appeal around brokers is that they take the hard work and confusion out of selecting between the hundreds of mortgage products in the market. But getting a home loan shouldn’t be difficult and simplicity as well as value and service is what QuickDirect is all about.

“Rather than trust a bank’s interest rate at face value, consumers should investigate the comparison rate which banks are obliged to disclose. This is a true reflection of what they’re getting charged when you take into account things such as application, maintenance and settlement fees. Getting a low interest rate can save tens of thousands of dollars over the life of a home loan, so it’s one of the most important factors to consider.”

QuickDirect offers both variable and fixed rate home loans. Both aim to deliver the lowest possible interest rates over the life of the loan no matter how much is borrowed. QuickDirect’s variable home loan offers an interest rate of 7.64% with no fees or charges in the vast majority of cases, therefore the comparison rate and the interest rate are identical.

Commenting on the launch of QuickDirect, Martin North – a Managing Consulting Director with Fujitsu Consultant whose work is heavily concentrated in the mortgage sector - said, “To date nobody’s done a particularly good job with online mortgages in Australia. Our research shows there is significant demand provided the approach is right. QuickDirect really represents the first serious attempt to offer a differentiated online proposition to consumers.”

About InfoChoice:

InfoChoice is an independent information provider for financial and investment products and services. Consistently rated a top ten website by leading internet ratings house Hitwise InfoChoice provides consumers with an unbiased environment in which to research and compare financial products and services. InfoChoice does not sell on behalf or receive commission for the sale of financial products from any provider listed on the InfoChoice website. InfoChoice does provide financial institutions a variety of services including research, technology solutions, consulting and development tools under an annual subscription agreement. InfoChoice is a publicly-listed company on the Australian Stock Exchange (code: ICH). The major shareholders have no connection with any of the providers listed on our websites.

About Fujitsu Australia and New Zealand:

Fujitsu is a full service provider of information technology and communications solutions. Throughout Australia and New Zealand we partner with our customers to consult, design, build, operate and support business solutions. From strategic consulting to application and infrastructure solutions and services, Fujitsu has earned a reputation as the single supplier of choice for leading corporate and government organisations. Fujitsu Australia Limited is a wholly owned subsidiary of Fujitsu Limited of Japan. Visit au.fujitsu.com for further information.