Coalition backflips on mortgage broker trailing commissions

Australia’s mortgage brokers have won a reprieve from Treasurer Josh Frydenberg, with the Morrison Government dumping its promise to ban trailing commissions due to concerns “about the impact on competition”.

Australia’s mortgage brokers have won a reprieve from Treasurer Josh Frydenberg after the Morrison Government dumped its promise to ban trailing commissions from July next year.

Trailing commissions, under which brokers are paid by banks for years after they have sold mortgages, were slammed by the banking royal commission for creating a ­conflict between brokers’ interests and their customers.

But after a fierce rearguard action by the industry, the ­government dumped plans to ban the commissions from July 2020, asking they instead be reviewed in three years by the Council of Financial Regulators and the Australian ­Competition and Consumer Commission.

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Mr Frydenberg said the move was made after consultation with the mortgage broking sector and small lenders.

“The reason is, we’re concerned about the impact on competition in the mortgage lending market,” he said.

“Small lenders and mortgage brokers are an absolutely critical part of competition in that market — there are 17,000 small lenders, 17,000 mortgage brokers employing 26,000 people, and they write over half of the residential backed mortgages.”

Treasurer Josh Frydenberg says the move to keep trailing commissions was made after consultation with the mortgage broking sector and small lenders. Picture: AAP /Daniel Pockett

The ACCC and the Council of Financial Regulators were already set to review mortgage brokers in three years’ time after the government rejected the commission’s recommendation that borrowers, not lenders, should pay mortgage brokers’ fees for home lending.

Mr Frydenberg said “the Coalition stands with mortgage brokers”, as he attacked Labor’s decision to back the abolition of commissions from lenders to mortgage brokers.

“Labor’s decision to have a higher upfront fee will cause problems for competition in the sector because not all ­lenders have the ability to, with a strong balance sheet, to ­provide higher upfront fees,” he said.

Shadow Treasurer Chris Bowen described the move as a “completely humiliating backflip” for Mr Frydenberg.

“He’s got to explain what’s changed in the last 30 days,” Mr Bowen said.

Labor said it remained committed to getting rid of trailing commissions.

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Originally published as Coalition backflips on mortgage broker trailing commissions