Bank resourcing should have been a ComCom recommendation

Squirrel Mortgages chief executive David Cunningham wonders whether the Commerce Commission should have made bank resourcing one of its recommendations in the bank competition study completed last year to ensure a level playing field.

Wednesday, January 8th 2025, 6:00AM

by Sally Lindsay

Squirrel Mortgages chief executive David Cunningham wonders whether the Commerce Commission should have made bank resourcing one of its recommendations in the bank competition study completed last year to ensure a level playing field.

He says it can be argued the recent longer turnaround mortgage application processing times are an unintended and extremely anti-competitive outcome.

“I say unintended because I don’t think the banks intended that. They effectively are encouraging customers to go to them rather than a mortgage adviser because they will turn around a loan application within 24 hours.

“It isn’t necessarily intentional, but they have been benefitting in a way that some might say is exactly the sort of thing the Commerce Commission should have a look at – customers getting 24-hour approval at bank branches when it can take weeks through an adviser.

“It’s an interesting dynamic that has been imposed through the housing market hotting up and banks not being ready. It’s a beautiful illustration of the problem with the banking oligopoly.”

What has effectively happened Cunningham says is the mortgage lending market dropped from about $100 billion a year of origination in the 2021 heyday to $60 billion and the big four Australia-owned banks downsized their frontline teams and didn’t upsize again as more and more loan applications went through independent advisers.

Over the past five years adviser originated loan applications have gone from 40% to about 60% and banks haven’t kept pace in terms of their adviser teams for what is still quite a manual loan approval process.

“If there is a 20% increase in loan applications banks need a 20% increase in staff because the level of technology used for processing loans in New Zealand is woeful compared to Australia,” Cunningham says.

“Banks don’t like the two-, three- and four-week turnaround times because it becomes a downward spiral, and I expect they will be working frantically to put more staff into their adviser teams.”

Cunningham says Squirrel seems to have navigated the change but says it has become stressful for advisers and their customers. It becomes very, very unproductive.”

ASB to restart new client pre-approvals

His comments in an interview with TMMO at the end of last year came as the ASB sent a letter to mortgage advisers saying it will restart mortgage pre-approvals for new customers at the end of this week.

The Australia-owned bank shut down pre-approvals for new clients in November, saying it was working hard to bring down turnaround times for processing home loans.

In the letter to advisers on 20 November, two days before it said it was going to restart pre-approvals for new clients after initially cutting them off at the beginning of the month, the bank says while it is growing capacity in its team it needed to balance incoming volumes, alongside planning for staff leave over the holiday period.

“We have made the decision to remain closed for new to bank pre-approvals until Friday 10 January, at which time we anticipate our turnaround time to be 5-7 business days.

“Our primary goal with this decision is to reduce our response times and improve our overall service to you and your customers.”

ASB has continued to accept live deals supported by a sale and purchase agreement and pre-approvals with an LVR up to 80% for existing bank customers.

Will turnaround times improve?

While ASB works to bring down turnaround times, iLender skipper Jeff Royle says if the Reserve Bank brings down the OCR again next month and interest rates drop as expected, it will create a further flurry of housing market activity and more loans for banks to process.

“If they haven’t staffed up over the past couple of months, the loan processing wait times are not going to improve.”

He says one of the banks has blamed advisers for the delays because they are scatter-gunning loan applications.

Royle says he is guilty of this but has been forced to send loan applications to more than one bank because he doesn’t know how long it is going to be for any bank to approve it.

“Real estate agents are being harsh as the market turns, insisting on five or 10 days for finance, which the banks can’t cope with. On top of that as interest rates have dropped advisers are seeing a lot more clients wanting to restructure their existing loans.”

If they haven’t staffed up over the past couple of months, the loan processing wait times are not going to improve.

He says part of the problem is under-staffing, the percentage of loan applications now going through advisers and the CCCFA. “Before the CCCFA changes restructuring a loan could be done through an email, phone call or a one-page form application. Now banks can’t do that and must actually reassess the whole loan again, which is nuts and unproductive.”

Royle says the increasing number of loans going through advisers seems to caught the big banks unaware and they haven’t staffed up accordingly. “Some have good initiative such as sending out applications to be processed through branches if the adviser centre is inundated.

He says where most banks fail miserably is with autoresponders, giving the application a number and advisers then having no idea whether the loan has been picked up for processing. “Often the banks’ adviser centres don’t monitor their inbox.” He says he is hearing a lot of words from the banks saying they are working on turnaround times. “Let’s see what happens next month. I expect the floodgates to open for loan applications if the OCR is dropped again.”

Tags: ASB CCCFA commerce commission David Cunningham home loans iLender Jeff Royle LVR Mortgage Rates mortgages OCR