KEY POINTS:
Two of the country's top banks, which have spurned mortgage brokers to build up their home loan business, have fired a shot at their competitors this week, putting their weight behind a new auction website that pits lenders against each other.
Kiwibank and BNZ are heading the list of mortgage lenders that have signed up with fundit.co.nz - a website which says its low 0.25 per cent commission rate will allow lenders to offer consumers better deals.
"Lots of people have a commoditised view of the home-loan market," says Blair Vernon, general manager, strategy and marketing at BNZ, who feels fees charged by brokers are excessive. "Our view was the economies of this market needed to change."
If banks are paying brokers 0.6 or 0.8 per cent commission on a home loan of $400,000, they are paying between $2,500 and $4000 per mortgage, which is taking away any margin the banks might hope for, he says.
Banks have been putting on pressure for lower fees from brokers, says David Tripe, director of the centre for banking studies at Massey University.
BNZ is happy to pay a "brokerage fee" to fundit.co.nz, says Vernon.
"I see value in that we reach customers who would not have reached us." He thinks the website has found a gap in the market.
Fundit.co.nz founder Peter McDermott, a former commercial property financier, says: "We are not the central bank, we can't control the size of interest rates, but we can take and improve the deal for consumers as much as possible."
The 0.25 per cent commission will come down to 0.2 per cent when a certain volume is reached and the rate applies to all lenders, says McDermott.
"This is a low-cost model. The con- cept is we enable this to work as cheaply as possible, then cost savings will get passed onto the consumer."
In a fundit.co.nz auction, lenders put in competing bids for a mortgage and only at the end will the borrower find out who the winning lender is, although the customer is not tied to a bidder at the end of the auction.
Nick Astwick, general manager of consumer finance at Kiwibank, says: "We will support anything that gives more power to the consumers in terms of making transparent and informed decisions about their mortgage. I think there's a percentage of the NZ market who are driven by price over brand.
"At the moment, Kiwibank's three-year rate is sitting at 8.9 per cent. In an auction, we might go below that."
As yet none of the mainstream banks that use mortgage broker networks have signed up to fundit.co.nz.
These banks are holding off, "anxious to retain favour with bro- kers", says Vernon. "You can dress it up, but it's clear why they are not there. If they disrupt the broker flow, the brokers are going to be unhappy."
Fundit.co.nz chief executive Abbey Foote, ex-chairman of Mike Pero Mortgages, realises existing broking links will be an issue for banks. "You could argue using us is an opportunity to look at borrowers they might not necessarily attract," she says.
ASB Bank, which has been running weekly home loan auctions on Trade Me for the past ten months, has chosen not to participate at this point.
Jonathan Symons, its head of marketing, says the bank markets its home loans through a number of channels and brokers are the main source of mortgage business.
Fundit.co.nz is an "interesting idea", and others have tried similar models overseas, says Symons.
"Sometimes it works, sometimes not. It takes a special sort of person to fill out a loan application online."
Vernon sees fundit.co.nz working across a range of financial services in the future, with insurance and longer term investment products.
"We have thought this model could be used for other products and we are well advanced in some of these developments, but we are concentrating on home loans," says McDermott.
As $33 billion of mortgages are re-fixed in the coming year, a good percentage of homeowners will be trawling the market for aggressively priced home loan deals.
"A lot of people will find their fixed rate will mature from two, three or four-year terms when their mortgage was 6.5 per cent," says Vernon.
"For some, the difference in rate will be as big as 3 per cent. It will mean a substantial increase."
Foote says: "Now, more than ever people, want to get a loan that is affordable, they are more focused on getting the best deal that they can."
Some senior mortgage brokers are negative about the launch of this online competitor as a busy time approaches.
NZ Mortgage Brokers Association chairman Geoff Bawden disagrees with the assumption the mortgage market is becoming more "commoditised". "I think ideally most people will want a relationship," he says. "Fundit might appeal to people who think above that and, in my opinion, they're not going to be that well-informed about choosing rates.
"There will be people who think rates are everything", and he warns rates can be "deceptive". A 9.15 per cent rate versus 9.05 per cent on a $100,000 mortgage was a difference of just $100 a year.
A good broker, he says, gets to know a client, understands their position, where they are at today and where they are heading.
But Mike Pero, founder of Mike Pero Mortgages, thinks there will be a market for fundit.co.nz "How big we don't know," he says.
People generally like to "eyeball" their mortgage broker and ask a lot of questions, and pricing is just a small part of the equation, says Pero.
