New Hong Kong mortgage broker AAHorses to give clients bigger cut of commission in hunt for market share

·4-min read

AAHorses Mortgage Brokerage Services, which started operations a week ago, will give away about 80 per cent of the commission it earns from banks to successful mortgage applicants as it competes for market share.

The current practice is giving successful clients 30 per cent to 40 per cent of the commission earned as a rebate. The city has about 10 mortgage brokers, which earn on average 0.3 per cent of the loan size as commission from banks for every successful home loan referred.

“We hope to capture 10 per cent of market share in the first six to 12 months,” said Elise Chan, AAHorses’ managing director. “We would like to be fair to our clients. We also want to educate homeowners that they will receive a better deal and services when they reach out to mortgage brokers directly,” added Chan, a former head of mortgage services for New Territories at mReferral Mortgage Brokerage Services, Hong Kong’s first such brokerage established in 2000.

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AAHorses’ entry and its plan to offer unprecedentedly high rebates to clients are expected to lead to fierce competition among Hong Kong’s mortgage brokers amid a boom in the city’s housing market. AAHorses’ launch comes as a trend for homeowners to apply for mortgages through brokers grows. And the mortgage loan draw down is expected to climb to a record HK$370 billion (US$47.6 billion) this year.

“Applications for home loans through mortgage brokers have grown to 50 per cent at some individual banks, mostly small to medium-sized lenders, from 20 per cent over the past 10 years,” said Eric Tso, chief vice-president at mReferral. The brokerage, however, prefers offering quality services rather than higher rebates to drum up business. Bigger rebates “will lead to unhealthy development in the industry, as bank commission are our core earnings”, Tso said. As mReferral was a subsidiary of Midland Realty, close to 50 per cent of its business was referred by the agency as well as agents from other firms, he added.

To compensate for the thin profit margin, Star Property Agency, a six-year-old mortgage referral brokerage, said it needed to generate high sales volumes.

“Demand for mortgages will continue to grow as interest rates remain low, unemployment has eased and the local coronavirus outbreak has been brought under control,” said Ivy Wong, managing director of Centaline Mortgage Broker. The brokerage last week forecast that Hong Kong’s mortgage loan drawn down would climb to HK$370 billion in 2021, smashing a previous record of HK$343.1 billion set in 2018.

Brisk home sales, driven by a recovery in the economy and improved unemployment rate, had lifted the number of new approved mortgage loans by 40.6 per cent to 49,031 in the first five months of this year, while total loan amount had jumped 52.3 per cent to HK$236.4 billion, Wong said.

AAHorses will give clients higher rebates by cutting out middlemen, such as agents who charge third to 50 per cent of the commission earned from banks, Chan said. “Agents have eaten up a substantial portion of the commission just for their referral fee,” she added.

If the brokerage receives HK$30,000 as commission from a lender for a successful loan of HK$10 million, it will give about 80 per cent, or HK$24,000, to its client. Based on current industry practice, the client may receive just HK$12,000.

“We have proved that our business model works,” Chan said, as she revealed that the brokerage had formed partnerships with three banks including Industrial and Commercial Bank of China (Asia). AAHorses was also in advance discussions with another two lenders, she added.

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