What does the Royal Commission Mortgage Broking “Reforms” Really Mean?
Part of the recommendations handed down in the Hayne Report for Banking Royal Commission have centred around how mortgage brokers are paid. Apart from the fact his findings were based on slew of inaccuracies and blatant untruths, there are some alarming consequences for consumers should the proposed “customer pays” model be adopted.
Currently almost 60% of mortgage holders procure their home loans through the mortgage broker channel. In the last decade this percentage has doubled as testament to the high level of consumer satisfaction with mortgage brokers and their service. Furthermore only 1% of consumer credit complaints to the Financial Ombudsman Service between 20013 and 2017 were about mortgage brokers and incidentally had dramatically decreased in the preceding 10 years. So, what’s the problem then? Good question.
Trail Commission is “Money for Nothing:” Wait, what??
Mr. Hayne referred to trail commission (the monthly fee received by brokers from lenders for active loan accounts) as “money for nothing”. This is an interesting assertion if you take into account that the majority of brokers actively seek to review their customer’s portfolio at least annually, will consistently negotiate better deals for their clients’ existing loans at their current lender, identify if there are other options elsewhere should they wish to pursue a refinance, assist them with post settlement queries such as account maintenance, discharge of mortgages and security swaps – just to name a few areas where brokers provide an ongoing service to their clients for the life of the loan.
So, if trail commission is banned then perhaps this may suggest the average brokerage will not be resourced to continue these maintenance-based activities. Instead the client will have to navigate their way through these requirements themselves; and be prepared to be on hold for extended periods of time – surely not their preferred option and not a favourable outcome. At this stage trail is to cease from July 2020.
Need a new home loan? Get out your cheque book!
The Hayne report also recommends in due course abolishing Upfront Commissions to brokers currently being paid at settlement, instead pushing for a move towards a “customer pays” model. While it is not concrete exactly how this will look, the suggestion is for the consumer to pay a fee to either the broker or lending institution, depending on the channel they choose. How this fee is structured is at this stage anyone’s guess though it would not likely be just a nominal amount, with current conversations suggesting it will be anywhere from two thousand dollars and beyond.
This added cost will certainly impede those seeking to take out a new mortgage who already lack resources, with the cost pf purchasing a home already a stretch for many. In addition, those seeking to refinance may be unable to afford several thousands to do so and therefore are forced to remain in an unsuitable loan arrangement with an uncompetitive rate, adding another lock to the mortgage prison they are already in. The result will seem that access to finance is a luxury service available to only those with means.
The Big Banks are the winners – not the consumer.
Changes to remuneration will mean the industry won’t be viable for many mortgage brokers and therefore will likely be forced to close their business. Smaller lenders that don’t have branch presence and rely on the broker channel to refer business will in turn be affected and possibly be forced to retreat from the market. The net result will be that the big banks will once again triumph and reap an even greater share of the market. Does this lack of competition serve the interests of the customer effectively or the interests of the banks who were ironically the primary target of this Royal Commission?
At Blackburne Mortgage Broking we pride ourselves on continually striving to provide high level service to our clients with whom we nurture long term partnerships to assist them in reaching their financial goals. It pains us to see such negative press and misinformation regarding our industry and those in it who like us are operating to simply provide good consumer outcomes for their clients. We hope to be assisting our customers well into the future and that this be a mere blip on the radar of our business’ trajectory.
However, we do need your help.
Click on the link below to sign the petition that will go to help keep competition alive. If enough noise is made, we can ensure that mortgage customers will not end up literally “picking up the tab” for a misguided and misinformed recommendation that is bound to negatively impact customers and brokers alike.
If you would like more information about broker remuneration, check out our blog on how we are paid to help clear up any misconceptions.