It’s been pretty difficult to get away from the news, but if you are not aware the Royal Commission into Banking has ended and the recommendations if implemented will signal the end of mortgage broking and possibly competition in the Australian mortgage market.

It’s been a month since Commissioner Kenneth Hayes delivered his recommendations on his review into the misconduct of banks. Whilst the banks were little more than chastised, mortgage brokers (who were not called on to represent themselves) were singled out with recommendations to change remuneration.

Recommendations are as follows:

  • Best Interest Duty This is common sense and I’m sure that 99.9% of brokers are already acting in the best interest of the borrower. This recommendation is that the best duty requirement becomes law, much the same as is required of financial planners.
  • Stop trail commissions. Whilst some in the media (and Kenneth Hayes) feel that trail commission is money for nothing it is worth noting that trail commissions came to fruition due to the lowering of up-front commission and spreading that across the term of the loan. The removal of trail commission will be a more than 50% income reduction for mortgage brokers.
  • Stop upfront commissions and move to borrower paying a fee – This is recommended to be implemented over the next few years and would mean borrowers would be expected to pay a fee for the service of a mortgage broker or lender.

So, what would fee upfront actually do? It seems baffling that a commission set up to ensure that consumers benefit will in fact make getting a loan more expensive. If you want to get a loan you will be forced to pay an upfront fee. Whilst some clients (a recent survey by Momentum Intelligence) said they would, 58% said they would not be willing to pay a fee and only 11% said they would be willing to pay $1,000 only 3.5% would be willing to pay up to $2,000.

The fees would be more likely in excess of $2,300. This would impact the borrower, especially first home owners and those on low incomes. It would also put many brokers who rely solely on residential mortgages out of business. $2,000 would not cover the costs associated with the processing a mortgage application or the running of a small business alone.

The decrease in broker numbers would limit choice as the smaller lenders in the market will struggle to access customers. The big banks will not only benefit from increased fees upfront they would also increase revenue as the need to be competitive diminishes.

If you’d like to maintain competition and assist the 17,000 small mortgage broking businesses in Australia then please support our cause by signing one of our online petitions:

Broker Behind You Campaign

Save the Mortgage Broking Industry – change.org


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