Embargoed: Tuesday 21 August 2007 – Exorbitant broker commissions cost Australian home buyers a massive $1.8 billion a year, according to InfoChoice estimates released today. This figure has inspired QuickDirect, a new breed of online mortgage provider, to enter the market to put an end to the behind-the-scenes arrangements between banks and brokers and to pass on savings directly to borrowers.
Discussing the broker commissions, InfoChoice general manager Denis Orrock said, "On a $250,000 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 with almost 50 percent of new mortgages expected to be sourced through brokers by year's end. While a mortgage broker 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 the issue of commissions by telling customers that these expenses are covered by the bank or loan provider. While 'technically' true, in reality these costs are factored into loan pricing and ultimately the customer pays through higher interest rates and fees."
People getting a home loan through a bank aren't better off either; Orrock added. Banks still need to factor in broker commissions when setting their prices, which means their customers end up paying the cost.
"What's remarkable is that some lenders are now talking about increasing interest rates to cover the cost of more challenging capital market conditions," he said. "It appears the consumer will be left to foot this bill while lender and broker margins remain intact."
New online mortgage provider QuickDirect has entered the market to give people shopping for a mortgage an alternative to banks and brokers. QuickDirect founder and managing director Hamish Carlisle, formerly head of the bank's research team with Merrill Lynch said, "Throughout my career, 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 and, because the company operates online via www.quickdirect.com.au rather than through branches or mobile lenders, it can keep operating costs low. These facts translate into great savings for borrowers.
Carlisle continued, "Much of the appeal around brokers is that they appear to 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 are 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 7.39% with no fees or charges in the vast majority of cases, therefore the comparison rate and the interest rate are identical.
A rarity in the industry, QuickDirect has a no "back book" policy, meaning every customer is treated equally and offered the same low rate - no matter when they purchase their mortgage or how much they borrow. Carlisle said, "Odds are if you took out your loan with a bank or lender longer than a couple of years ago you're paying more than a customer that took out a loan last week. This inequality won't happen at QuickDirect."
Commenting on the launch of QuickDirect, Martin North, a managing consulting director with Fujitsu Consulting 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."
QuickDirect is a member of the Mortgage & Finance Association of Australia and the Credit Ombudsman Service Limited. All loans are funded by one of the largest financial institutions in the world.
About QuickDirect:
QuickDirect is a new online mortgage provider that has refreshed the home loan environment, saving Australians money, as well as providing a clear, simple five step process that is both convenient as well as personal thanks to dedicated consultants who work with customers from the time they apply online right through to loan settlement.
QuickDirect offers clear and simple products that aim to deliver the lowest possible interest rates. QuickDirect's variable home loan offers an interest rate of 7.39% - a rate far below that of many banks or lenders – with no upfront or ongoing fees and the ability to make early repayments or redraw funds over the internet or telephone at no cost. For full product details visit: www.quickdirect.com.au/Content/Products
QuickDirect is a member of the Mortgage & Finance Association of Australia and the Credit Ombudsman Service Limited and all loans are funded by one of the largest financial institutions in the world.