Why Aren’t More Canadian’s Using a Mortgage Broker?

EditorAbout Mortgage Brokers, FamilyLending.ca, General Interest, Household Budget, Mortgage News

Sound financial advice is key for any property purchase. Mortgage brokers in particular are expected to provide house hunters with personal assistance throughout the buying process. Data from a recent report shows that Canadian mortgage brokers are living up to these expectations, providing their customers with a highly positive purchasing experience.

So why aren’t more people working with a mortgage broker?

According to highlights from the 2011 Canadian Association of Accredited Mortgage Professionals’ consumer and industry surveys, only 27% of outstanding Canadian mortgages originated through a mortgage broker. While the mortgage broker channel in Canada is now recognized as the second-leading origination channel, the industry has seen very little growth over the past five years. Big banks continue to dominate, controlling 55% of the market, while credit unions account for an 18% share. Mortgage brokers do appear to have a firm hold on first mortgages – 33% of the first mortgages taken out on a property are facilitated with the help of a broker. However, this number drops significantly for mortgage renewals and renegotiations, with just a 20% broker share.

A Look at Your Average Mortgage Broker Customer

According to the CAAMP report, the average Canadian mortgage broker customer is 36 years old. This is relatively young, considering the media age among lender customers is roughly 42 (just 35% of lender clients are 36 or younger). Mortgage brokers are also more apt to deal with families – 53% of mortgage broker customers live with children under the age of 18, compared to 43% of direct-to-lender clients.

Mortgage broker customers are also financially stable. The household income of a mortgage broker client is well above average (which is surprising, considering the customers are normally quite young). With that being said, broker clients tend to have a much smaller home buying budget; roughly 14% lower than lender clients ($289,000 compared to $336,000).

When all is said and done, 90% of broker customers are satisfied with their mortgage experience, which is higher than the industry average of 87%.

Areas of Improvement

If the mortgage broker industry is to grow as predicted (many experts anticipate that brokers will capture up to 35% of the market within a five year window), changes must be made in three key areas:

  • Customer awareness
  • Cooperation between lenders and brokers, especially in regards to renewal strategies
  • Expansion of the target market

Harnessing the Power of the Web

Referrals are the primary source of customer awareness in the broker channel. A staggering 82% of customers found out about their broker from a referral source. Amazingly, only 6% of broker customers cite the Internet as their primary connection. Brokers are missing out on a huge market of customers by failing to leverage the web for online sales.

Lack of Understanding Hinders Mortgage Broker Expansion

Low consumer awareness and product understanding are the most important challenges facing Canadian mortgage brokers. According to the CAAMP survey, only 5% of Canadian home buyers say they have a full understanding of the services provided by a certified mortgage broker, while just 35% admit to having a good understanding. Interestingly enough, broker market share is 50% higher among the 40% of consumers who have a full or good understanding of the services offered by a broker. This just goes to show that if brokers can increase awareness, they should have no problem increasing sales.

When asked why they didn’t consult with a mortgage broker prior to signing a lender agreement, most (39%) non-broker customers insisted it was because of loyalty to their bank. Another 33% stated they just “didn’t think of it,” while another 24% stated they felt their bank would provide a better rate. Only 12% stated it was because they had heard bad things or had had a bad experience with a broker in the past.

Smoothing Broker/Lender Relationships

The relationship between mortgage brokers and lenders has always been complicated, especially when it comes to client relations. Many lenders believe they are purchasing the client relationship when they deal with a broker, whereas most brokers see this transaction as a rental. This causes problems when it comes time for the mortgage holder to renew or renegotiate their rate. Both the broker and the lender believe they are the client’s primary source for renewal information.

In order to triumph over lender representatives during the renewal process, brokers need to take a proactive stance. Research shows that 96% of mortgage holders would like to receive post-sales calls from their mortgage provider. Mortgage clients are interested in staying up-to-date on rate changes as well as discussing strategies to improve their current terms. CAAMP advises all mortgage brokers to communicate with their clients between four and six times a year, via telephone and email interactions.

The outlook for mortgage broker growth is good in Canada, but not without some fundamental changes. For more information on how FamilyLending.ca is changing the way you manage your mortgage, visit www.familylending.ca.

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