Mortgage brokers warn banks will cash in on loan changes after banking royal commission

Home loans will be a lot more expensive and harder to get as the banks will unfairly benefit from a controversial proposed change to mortgage broker rules, warn the state’s industry leaders.

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Home loans will be a lot more expensive and harder to get as the banks will unfairly benefit from a controversial proposed change to mortgage broker rules, warn the state’s industry leaders.

In the wash-up of the royal commission into the banking se ctor, the one recommendation that has created such a furore is borrowers, rather than lenders, pay an upfront commission to mortgage brokers when they get a loan.

Currently, brokers are paid an upfront fee and then a “trailing commission” by a bank or other lender, over four to five years.

In practice the customer does not see this payment, with the cost absorbed by the bank.

The Government plans to ban trail commissions on new loans from July 2020 but undertake a review in three years about the implications of removing upfront commissions as well as moving to a borrower-pays remuneration structure.

Federal Labor has said it will support the borrower-pays recommendation, setting up a political stoush between the two major parties.

The mortgage broking industry, which has grown from almost nothing three decades ago to 55 per cent of the home loan sector, says the move would deter consumers from sourcing a loan from a broker.

They say it would also force operators out of business and, ironically, benefit the big banks, by reducing competition.

Mortgage Broker Marissa Schulze from Rise High Financial Solutions. Picture: AAP / Keryn Stevens

Rise High Financial Solutions founder Marissa Schulze said, at present, the broker’s trailing commission was absorbed into the cost of the loan – and customers did not pay for the service.

Four SA brokers told The Advertiser there was every chance that, if competition in the sector lessened as a result of the proposed changes, banks would “double-dip” by adding the cost of setting up the loan to the overall loan cost, thereby making products more expensive.

Ms Schulze said her business compared a panel of 60 lenders and came up with the best outcome for customers – something it would be very hard for an individual to do.

“These recommendations will only benefit the banks,” she said.

“There’s absolutely no benefit for consumers to be gained.”

Bernie Lewis Home Loans managing director Mark Lewis said since his father launched the business in the early 1990s, the banks’ margins had fallen dramatically, from 5-6 per cent to 1.7-2 per cent, showing the value of competition.

Bernie Lewis Home Loans executive Mark Lewis.

Financia managing director Angelo Benedetti.

“That’s all because of competition,” he said. “That’s because mortgage brokers came into the market and allowed second and third-tier lenders, and regional lenders from all around Australia to increase their distribution network.”

“Potentially we could see a return to the market power of the banks ... and the outcome, ultimately, could be that consumers are worse off.’’

Mr Lewis said brokers provided much more than loans, often proactively helping clients refinance and ensuring they were getting the best deal.

Financia managing director Angelo Benedetti said while mature businesses would survive, there would be casualties at the smaller end of the sector.

“Unfortunately if the brokers are cut out, banks will increase interest rates and charge a fee and they’re going to double-dip,’’ he said.

Mr Benedetti said customers would be forced back to using the Big Four banks and would end up paying more.

Steve Marshall from The Loan Arranger said it was ridiculous that his industry did not get a chance to represent itself at the commission, but was being punished. Mortgage and Finance Association of Australia chief executive Mike Felton said the proposal could deliver a “fatal blow” to the industry.

“The large banks must be absolutely rubbing their hands with this outcome,” Mr Felton said.