Mortgage Choice cuts payout amid Hayne uncertainty

Broking group Mortgage Choice has cut its dividend as it warned of the impact from uncertainty sparked by the Hayne report.

Mortgage Choice CEO Susan Mitchell. Picture: John Feder

Mortgage Choice says its franchisees will lobby local parliamentarians against sweeping changes to mortgage broker pay, as the group slashed its dividend to help deal with any reforms stemming from the Hayne royal commission.

Alongside its interim results, Mortgage Choice cut its dividend by two thirds to 3c a share, from 9c in the year earlier period.

The company said uncertainty about the broker pay model was making it difficult to attract new franchisees and could empower the big banks.

Chief executive Susan Mitchell told The Australian: “(The banks) want their customers back and customers are going to brokers because they want choice and help.”

If trail commissions, paid annually over the life of a loan, were abolished, Ms Mitchell expected banks to try to woo customers back with aggressive discounts, lowering their commission costs.

Mortgage Choice shares rallied amid speculation Labor would soften its approach to the sector and would not push ahead with implementing Kenneth Hayne’s recommendations on mortgage broker pay in full.

Labor would not confirm its position yesterday.

After surging as much as 15 per cent, the stock closed 8.5 per cent higher at 76.5c. But the shares remain 27 per cent lower than their pre-royal commission final report levels.

Ms Mitchell said while she was “excited” to hear of Labor’s possible response, consultation was still required to come up with a viable future pay model. She said brokers were “shell-shocked” at Mr Hayne’s recommendations to scrap commissions paid by banks and move to a fee paid by borrowers.

Separately, Aussie Home Loans boss James Symond addressed about 350 brokers in Sydney yesterday and encouraged them to engage with local MPs on the topic.

“The customer-pays model is detrimental. Customers are not used to paying and won’t pay,” he said of Mr Hayne’s recommendations.

Brokers account for 59 per cent of mortgages written.

The royal commission has prompted angst in the broking community after Mr Hayne recommended banning upfront and trail commission payments in favour of a flat fee.

The government has said it will ban trail commissions in mid-2020 and review the market in three years, stopping short of banning upfront commissions paid on loan settlement, due to concerns about hurting mortgage competition.

The royal commission also recommended implementing a best interest obligation on mortgage brokers to ensure they put customers’ needs first.

Ms Mitchell said: “Mortgage Choice is supportive of the royal commission’s recommendation to move to best interests duty for mortgage broking. Best interests duties already apply to Mortgage Choice so operationalising these changes will be manageable.

“Mortgage Choice is calling for both sides of government to initiate a consultation process.”

On the outlook for the housing market, Ms Mitchell said she expected house prices would continue to decline for another 12 months, before fundamentals such as population growth and household formation kicked in again.

“I don’t think we are going to have a bath (on prices),” she said.

The group’s statutory profit tumbled to $6.4 million in the six months ended December 31, down from $11.4m in the same period a year earlier.

The weaker results reflected five months of a new internal pay framework for Mortgage Choice brokers and a softening of loan volumes as credit growth tempered.

Net profit on a cash basis was $7.1m, consistent with guidance.

Ms Mitchell said: “The new broker remuneration model has been in place for five months and pays franchisees more while reducing their income volatility when the market slows.’’

Mortgage Choice’s total loan book edged up 1 per cent to $54.5 billion in the half, but settled home loans declined 12.1 per cent to $5.3bn.

Funds under advice in its financial planning division rose 28.8 per cent to $816.9m.