The Financial Post broke a story last week regarding National Bank’s new mortgage marketing strategy. They discovered that Canada’s sixth largest bank was compensating real estate agents for referring mortgage customers. The discovery is troubling for mortgage brokers as they face an onslaught of big bank competition in the industry pitting them against enormous marketing budgets and built-in consumer loyalty.
Figures from a recent CAAMP survey tell us that banks still own half the market share for new mortgages being sought out.
|Source Type||New Mortgages|
|Other (Credit Unions)||24% (14%)|
Although consumers obtaining new mortgages (versus renewals) go through brokers 27% of the time, total broker market share now sits at 23%, which has dropped in recent years due to the aggressive market push of banks.
What’s unique about National Banks rewards program?
There are other big banks who offer rewards for referrals, such as RBC and TD, but the compensation is not usually cash. RBC’s program, RBC Referral Awards™, is meant for realtors or builder site agents, and compensates with points for referrals. TD’s Service Plus Rewards™ program also provides points as incentive, which can be redeemed for merchandise or travel rewards just the same.
An investigation by Canadian Mortgage Trends revealed that some National Bank reps advertising online for realtor referrals – pay out 50 basis points (0.5%) of the mortgage amount. Using cash as an incentive is a great tool for motivation, especially in today’s economic environment. Consider a realtors situation, they can refer their clients to either a bank for “points” or money, or a broker they have a relationship with. In today’s economy, which method do you think they’re more likely to favour?
However, as per regulation, real estate agents must disclose any financial incentive when referring clients to mortgage specialists.
So why would National Bank prefer realtors?
National Bank CEO Louis Vachon was quoted as saying, “I’m trying still to do more business with real estate agents because it’s less costly. So I’d rather get my origination from the cheapest source for mortgages”.
Banks vs Brokers
Remember to do your homework when comparing mortgage rates to ensure you get the best product that fits you. Speak to a qualified mortgage broker because they work for you by keeping your best interests in mind. It’s also a broker’s job to stay current with the mortgage industry and what each lender’s rates look like. You might not find the same level of service when dealing with a bank mortgage specialist, who can only offer you the bank’s best rate – which can sometimes be a full percentage higher than the lowest mortgage rate available on the market.
What will happen?
Will National Bank come out on top? They are currently Canada’s sixth largest bank who just posted a second quarter profit of $295 million and are looking to increase their prescence in the market. Low Interest rates continue to keep the mortgage industry competitive. We’ll keep our ears to the ground to keep you updated!