A blanket ban on commissions as suggested by Kenneth Hayne would have a “devastating effect” on mortgage broking industry, says MFAA CEO Mike Felton.
The MFAA (Mortgage & Finance Association of Australia) and “a coalition of industry partners” have launched a national campaign against Royal Commission recommendations to abolish commissions paid to mortgage brokers, saying the move would hurt consumers and benefit the big four banks.
In Commissioner Kenneth Hayne’s Final Report, one of the suggestions was for mortgage brokers to switch to a business model where borrowers pay a fee to their broker, with the intent of aligning the interests of brokers to their customers.
Currently, mortgage brokers receive an average upfront commission from lenders of about 0.6 percent of the loan value and a trailing commission of about 0.2 percent of the loan outstanding per year for the life of the loan, according to an AFR report citing the Productivity Commission.
While the government has agreed to impose a ban on trail commissions from mid-2020, it did not accept Hayne’s recommendation to also ban upfront commission. It was the only of 76 recommendations the government did not accept.
According to MFAA CEO Mike Felton, a blanket ban on commissions would significantly lower broker remuneration and have a “devastating effect” on the broking industry, kill competition and drive up the cost of borrowing for millions of Australians.
Currently, about 59 percent of all Australian mortgages are originated by mortgage brokers, with more than 500,000 home buyers using a broker each year. Further, mortgage brokers enable small and regional lenders to compete nationally against the big four banks, putting downward pressure on interest rates, Felton said.
Treasurer Josh Frydenberg seems to agree, saying in his response to the Hayne Final Report that the borrower-pays model will slash much of the AUD 2.4 billion a year banks pay to mortgage brokers and reduce competition in mortgage lending.
“In effect you would be putting the mortgage brokers out of business and giving that business to the big banks,” Frydenberg said.
The MFAA campaign invites consumers to join the lobbying effort to fight the changes before they are bought before Parliament in the coming months.
Meanwhile, some consumer advocates are reportedly accusing mortgage brokers of waging a “scare campaign”.
“We have seen commissions abolished in other countries like the Netherlands and it has worked well and improved outcomes for consumers there,” said Consumer Action Law Centre policy director Katherine Temple, noting that the broker channel lost market share only slightly (from 50% to 45%) since the Netherland’s banned broker commissions.
“These doomsday predictions for the industry are overblown and not supported by the evidence,” she said.