One of the things that we as brokers always strive for is to promote the value of our service. One of the best ways to do that in my opinion is to let others do it for us. Recently their have been some extremely credible sources that have supported that concept. We need to leverage these and learn to adapt our approach and methodology. The Bank of Canada published a study entitled ‘Competition in the Canadian Mortgage Market‘, I referenced this study in my post on ‘The Rate Game‘, but lets review some of the findings in detail and discuss where these might be able to assist you in your daily business. All of these research papers, surveys and studies are kind of useless unless you can figure out how to use them to your advantage in the marketplace.
One of the questions this study examined was “Why lenders post high rates if they are going to offer discounts to the majority of consumers”. The findings were that “Over time lenders have improved their ability to offer discount rates to different sets of consumers based on their willingness to pay. Lenders can thus increase their profits through price discrimination instead of offering a blanket reduction in rates.” In other words an uneducated consumer is a profitable one and one that will pay more for a mortgage product. While I recognize the importance of profitability it has to be kept in check with competition.
One of the things that the big banks often discuss when criticizing the use of mortgage brokers is the fact that they, the banks, have a large branch network to offer more service. This study concludes that “banks with large branch networks charge higher rates than banks with smaller branch networks.”. This is to be expected but begs the question, “Do you really want to pay more on your mortgage for a larger branch network?”.
I’ll never forget one day a few years back, I got home and my wife was in an extremely unhappy place. I asked her what was wrong and she proceeded to tell me the story of her in branch banking experience for the day. She had a few deposits to make on this particular occasion and did not feel like dealing with the ATM but opted instead to wait in line for a teller. She felt like having some human interaction at the bank. There happened to be a line-up and she had to wait about ten minutes to see someone. She was infuriated when she got to the front of the line, presented her cheques and deposits only to be told, “Oh, if you are just making a deposit you can do that at the ATM” and the teller directed her to the machine. Now being non-confrontational she went and made the deposit at the ATM but boiled over. So if you were to ask her if a larger branch network is worth a few extra basis points on her mortgage I can tell you what she would say.
The results also indicated that “higher-income households pay higher rates, on average, than lower-income households. High-income households are likely less inclined to spend the time shopping for and negotiating a mortgage.” Obviously this is one that is relevant to your high income clientele when working on their mortgage. Reminding them again of the fact that without the services of a mortgage broker they would likely continue to be taken advantage of. Position it this way with your clients. “If the banks can charge you more they will, whereas if I can charge you less, I will”. This is not just an arbitrary statement it is backed up with facts provided by the Bank of Canada.
Ever feel like the banks are quick to pass on rate hikes but slow to pass on rate drops? Well this study comes to the same conclusion. “They find that in the short, run five of the six largest Canadian banks adjust their rates upward more quickly when there are upward cost pressures than downward when costs fall.”
The paper is a fantastic way to demonstrate the value of the broker channel to the Canadian consumer.