'A massive handball': Brokers fear Hayne changes will hurt consumers

Mortgage brokers have hit out at the royal commission's recommendation to scrap their commissions, saying it will play into the hands of the big banks by making customers less likely to compare loans and find the best interest rate.

Chris Chardon, who owns an independent mortgage brokerage in the inner west and western Sydney with his father Mick, said: "CommBank aren't going to tell you about NAB or ANZ down the road having a cheaper rate and nor are they going to tell you about any of the other smaller lenders out there that you wouldn't have even heard of."

Mortgage broker Chris Chardon says the banks will be the big winners from cuts to brokers' commissions. Credit: Dominic Lorrimer

Both major parties have committed to removing trailing commissions, which pay brokers a small percentage of the value of a loan every month for the life of a loan, but only Labor has said it will remove upfront commissions.

“Why should a broker, whose work is complete when the loan is arranged, continue to benefit from the loan for years to come?,” commissioner Kenneth Hayne said in his final report of trailing commissions.

“It cannot be that they are deferred payment for fees earned earlier when the amount paid as trail depends upon the length of the life of the loan.”

Consumer advocacy group CHOICE said the Coalition's decision not to ban upfront commissions was disappointing.

“This breaks one of Commissioner Hayne’s key rules for fixing the system — which is that conflicted remuneration such as commissions should be banned," CHOICE chief executive Alan Kirkland said.

"The reason [Commissioner Hayne] said they should be banned is because they create incentives for brokers to recommend what’s best for the bank, not what’s best for the person seeking a loan.”

But Mr Chardon believes most of the unscrupulous operators whose conduct was revealed by the commission have left the industry. He said forcing mortgage brokers to charge upfront fees would advantage the banks, who can sign customers up to loans for free and recoup their costs in interest over the life of the loan.

"You're going to give massive handball over to the banks if you start making clients pay upfront," Mr Chardon said.

Mortgage Choice chief executive Susan Mitchell, who runs one of the largest listed mortgage brokers in the country, expressed a similar sentiment. "The proposed changes... could give more pricing power to the major banks which would lead to less choice, less access to credit and higher interest rates for consumers."

And while Mr Chardon said he thought there was no political will to retain trailing commissions, he believes they help align brokers' and customers' interests because they can be clawed back by banks if a customer is so unhappy with their loan that they switch to another provider.

"It's in the broker's best interests to keep the client happy and that's what the intention of the trailing commission was," Mr Chardon said.

Despite Labor's stance, Mr Chardon still he intends to vote for the party, but said he understood why many other brokers are angry at the Bill Shorten's stance.