Mortgage brokers accused of ripping off clients by overcharging

MORTGAGE brokers have been accused of signing up customers to larger loans than necessary and costing them $4600 per loan.

MORTGAGE brokers have been slammed for charging customers large commissions and signing them up to fatter loans that are more likely to be interest-only.

And a majority of home loan customers are wearing the cost by paying higher interest rates, new research shows.

Following the recent release of two key reports into the mortgage broking industry including remuneration, brokers have come under fire for failing to provide the best interest rate for customers and costing customers more over the life of the loan.

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Mortgage brokers have been accused of charging customers too much when they sign up to a loan.

Prominent banking analyst Jonathan Mott, from investment bank UBS, has detailed findings from two reports and states average broker commissions per mortgage are now $4600 and are far too high.

“The ASIC and Sedgwick Reviews found broker loans were larger, higher loan-to-value ratio, more likely to be interest only and were paid off more slowly by borrowers than bank originated mortgages,’’ he said.

“We believe ($4600) is disproportionate for advice provided on a simple, commoditised, single products particularly when compared to the fees charged by financial advisers for “simple” financial advice ($200 to $700.)”

Mr Mott also said in his research, “broker commissions now add 16 basis points per annum to the cost of every mortgage in Australia.”

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Mortgage brokers commissions are paid by the bank and factored into the cost of the loan.

Mortgage broker commissions are paid by the bank not the customers and instead are factored into the bank’s cost of funding.

Financial comparison RateCity found on a $300,000 30-year home loan the average standard variable rate is 5.31 per cent costing customers and $1668.

If 16 basis points was subtracted customers would pay a rate of 5.15 per cent and monthly repayments would drop by $30.

He also states there has been a “blowout” in commission to brokers, climbing from $1.46 billion in 2012 to $2.4 billion in 2015.

But the Mortgage Finance Association of Australia’s chief executive officer Mike Felton has criticised the report and calculations used — he said they took total commissions paid to brokers (including upfront and trail) in the last year and divided them by the number of mortgages written by brokers in the same period.

Mr Felton said the trailing fee should not have been included as it continues after the year the loan originates.

Mortgage and Finance Association of Australia chief executive officer Mike Felton said popularity in people using brokers had led to the increase in commission to brokers.

“Any blowout in commissions is due to the simple fact that every year more Australians are turning to brokers rather than lenders,’’ he said.

“Last year saw a four per cent increase in use of brokers who are now writing more than 53 per cent of all loans.”

In the report, Mr Mott said he expects banks to negotiate much lower fee-for-service commissions in the coming months and advice for a mortgage could be done more cost effectively by using robo-advice or otherwise known as automated advice.

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