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Major banks have rejected suggestions they will follow the Bank of New Zealand's lead and stop using mortgage brokers to improve the profitability of their home loans.
The tussle between the banks for market share - widely regarded as having been initiated by the BNZ when it started its Unbeatable campaign - has put intense pressure on home loan profit margins as banks are forced into a Dutch auction to win or retain business.
Some banks say current margins are unsustainable, but BNZ says it can manage because it does not give away any share of profits to mortgage brokers.
David Chaston of interest.co.nz told the Business Herald the Bank of New Zealand's strategy of not using brokers was looking "fairly successful" and other banks might follow suit.
"And if one of the other three majors go the BNZ way, the mortgage brokers are going to be in a difficult position."
That would leave brokers able to deal with only two of the main banks, which generally offered the most competitive rates.
"They are not going to be able to look their clients in the eye and say we are checking the whole market," said Chaston.
Two top banks say they are likely to continue with mortgage brokers.
A spokesman for ANZ/National Bank said brokers were "an important channel" for the bank, and he did not know of suggestions it was looking to change its relationship with them.
A Westpac spokesman said the bank was "happy with the relationship".
"That that's how our customers want to shop for their mortgages," he said.
"A large proportion would prefer to deal with brokers, and we're responding to that preference."
Mortgage brokers' appeal to home buyers is their ability to shop around banks and other lenders and negotiate rates more often than not at a significant discount to those advertised.
The banks secure more business in exchange for a few points of their margin - the difference between the rate at which they borrow and what they charge home buyers - while being spared some of the expense of running an in-house broker network.
Brokers can now go to the three other major banks - ANZ/National, Westpac and ASB Bank - and to other non-bank lenders.
TSB Bank and Kiwibank do not use brokers.
About 20 to 30 per cent of New Zealand mortgages are negotiated through brokers.
The BNZ's new chief executive, Cameron Clyne, has refused to talk to New Zealand journalists until he takes up his position next month.
But he told the Australian Financial Review the bank would probably continue its Unbeatable advertising campaign.
And the BNZ's general manager of personal banking, Blair Vernon, said the campaign had been very successful and the bank viewed customers it won through Unbeatable as long-term business.
"There is leverage to be gained from the total relationship with the customer in terms of dealing directly with them," said Vernon.
"We're entering into a long-term relationship because we haven't had it handed to us by a third party and it isn't going to be whipped away by a third party."
But Vernon said he would be surprised if any of BNZ's major rivals dropped the brokers.
"I think it would be very difficult for them to do it because they clearly have a substantial amount of flow associated with brokers."
But if one did make such a move, it would be less of a surprise than it would have been a year ago.
"The long run economics of this market which we predicted three or four years ago are coming home to roost well and truly," he said.
Lower margins for mortgages were becoming entrenched.
Laurie Wills, Wellington co-director of mortgage broker the Home Loan Shop, doubts the other majors would seriously look at pulling the plug on brokers, and says that even if one did, it would hardly be a body blow for the industry.
"If one did, it certainly wouldn't be a positive for the industry, but I don't think it would signal the demise of our business."
Mortgage Brokers
* Brokers shop around on behalf of home buyers and negotiate the lowest interest rates they can.
* They generate business for banks and other lenders in return for part of their profit.
* Intense competition between lenders means profitability on home loans is falling.
* That could put the squeeze on the mortgage broking industry.
