A JP Morgan report into the mortgage industry has found that customers who obtained a home loan through a broker are far more sensitive to rate changes than those who visited a bank branch.
The latest Australian Mortgage Industry Report – Volume 24, released yesterday, explores the potential impact on borrowers of significant mortgage repricing as Basel 4 capital requirements loom for Australia’s biggest mortgage providers.
When it came to sensitivity to higher rates, the report found that loans originated by third parties have a substantially higher sensitivity to rate changes. The report noted that this is likely due to larger loans being written by brokers and that broker usage is higher among interest rate sensitive borrowers.
Interestingly, the report noted that interest rate sensitivity is relatively consistent across interest only and principle and interest loans.
Digital Finance Analytics principal Martin North, who collaborated with JP Morgan on the report, said these findings reflect the different mix of customer behaviour and customer types who visit brokers.
“One of the critical things that we look at is whether people are ‘soloists’, meaning that they want the lowest price they can get, or whether they are ‘delegators’, meaning they are more worried about customer experience and the whole package rather than the price,” Mr North explained.
“Price sensitivity is much more extreme for people who go via brokers. There is already an urge to find the best deal if you go to a broker. Secondly, brokers have the ability to look across the market and across multiple lenders and they know from their experience where the best deal might be for a particular borrower at a particular point in time,” he said.
“The net result is that there is a higher risk footprint in loans written via third-party than first-party, and that is something which needs to be recognised in terms of how pricing is done and also how risks are managed.”