Home loans will cost more owing to royal commission finding, say mortgage brokers

Mortgage brokers have savaged the final report from the banking royal commission, saying ­a dramatic overhaul in how they are paid will make loans more ­expensive and boost the big banks.

Mortgage brokers are unhappy that they will no longer receive trailing commissions.

Australia’s mortgage broking industry has savaged the final report from the banking royal commission, saying a move to dramatically overhaul how brokers are paid will make loans more ­expensive by entrenching the power of major lenders.

The Finance Brokers Association of Australia late today said the royal commission had fundamentally failed to understand the role mortgage brokers played and the competitiveness they brought to the home loan market.

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The sector, which accounts for 60 per cent of all home loans, is gearing up to fight a key recommendation in the final report from Kenneth Hayne’s royal commission — that borrowers, not lenders, should pay brokers.

“Commissioner Hayne wants to hand even more power to the big banks and eliminate competition, which is a ridiculous ­scenario and shows just how out of touch he is when it comes to brokers,” Finance Brokers ­Association managing director Peter White said.

Mortgage brokers says a proposed shake-up to how they are paid will strengthen the hands of the big banks and lead to higher home loan costs.

“We know that most borrowers wouldn’t pay and banks would make more money and standards would drop further.

“It’s very disappointing that the royal commission wants to destroy some 20,000 small businesses for the monetary gain of the big banks.”

The furious response came as Australian Banking Association chief Anna Bligh said the banking sector accepted “full responsibility” for the failings outlined by the commission.

“Today is an opportunity for banks to reset their relationship with their customers and with the Australian people and banks are determined not to miss that opportunity,” Ms Bligh said.

The former Queensland premier said she understood there was widespread cynicism towards banks but urged the public to judge banks “by their actions” in coming weeks and months. Ms Bligh indicated, however, that the sector would push back against the shake-up of mortgage broker payments.

“I think there are some very radical suggestions here that need some very careful thinking before they are rushed into,” she said.

Shares in the major lenders all rose ahead of the report’s release. The Commonwealth Bank gained 0.8 per cent to $70.30, Westpac 1.2 per cent to $24.87, ANZ 1.2 per cent to $25.22 and National Australian Bank 1 per cent to $24.03.

But under-the-pump wealth managers including AMP and IOOF continued to lose ground, with the former falling another 1.3 per cent to $2.21.

NAB tonight said it was reviewing the report and the government’s response to it “to fully understand the implications for the NAB Group”.

The Commonwealth Bank said the report had called out “the clear need for change”.

“As challenging as the royal commission process has been, CBA will be a better bank as a result,” it said. Westpac said the report was a “turning point” in the process of rebuilding trust in the industry.

“We will work with policy makers and regulators on the best path forward for customers and the industry,” chief executive Brian Hartzer said.

Australian Banking Association chief Anna Bligh says banks now have an opportunity to “reset” their relationships with customers.

Among the 76 recommendations in his report, Mr Hayne says the trailing commissions paid to brokers by banks should be banned and the industry — over two to three years — move to a system where upfront fees are paid by ­borrowers.

It also recommends changing the law so it states brokers must act in the “best interests” of ­borrowers.

Federal Treasurer Josh Frydenberg has committed to banning trailing commissions but stepped back from adopting a user-pays model. Federal Labor has indicated it will support the user-pays model.

Mr White said the government’s move to ban trailing commissions was likely to increase upfront commissions.

“This could force upfront commissions to rise in order to compensate for reduced revenues to brokerages, which in turn will lift interest rates and make housing affordability more difficult,” he said.

“There is a reason why over 59 per cent of loans are written through brokers — customers have no issues with broker commissions,” he said.

Consumer group Choice said the final report was a “damning indictment” of industry self-regulation.

“This represents a key turning point for the industry and its lobby groups,” chief executive Alan Kirkland said.

“Will they pretend to accept the recommendations then lobby to undermine them behind closed doors, as they have with every other major reform?

“Or will they realise that if they want to win back community trust, this time they need to act with integrity?”