NAB joins rivals in reducing clawback rates to mortgage brokers

National Australia Bank is the latest big lender to reduce the amount of commission payments it can claw back from mortgage brokers, given industry pressure.

National Australia Bank is the latest lender to introduce changes to clawback provisions for mortgage broker commissions. Picture: AFP

National Australia Bank has joined its rivals in reducing the amount of commission it can claw back from mortgage brokers if a borrower switches home loans in the second year or opts to close the mortgage account.

In response to pushback from parts of the mortgage broking industry, NAB has introduced a string of changes from this month.

The measures also come amid heightened tension between the big four banks and brokers. Some of the major banks are taking increased measures to protect net interest margins on home loans, including focusing more heavily on writing loans through their own proprietary channels.

An email sent to brokers that work with NAB, and sighted by The Australian, said: “As the bank behind the broker, we acknowledge the importance of commissions, our aim is to ensure we have a fair approach.”

Clawback provisions were introduced by banks to foster customer retention and disincentivise mortgage brokers from encouraging borrowers to change home loans too often. Brokers are also bound by obligations to act in the best interest of the customer.

Banks typically pay mortgage brokers a 0.65 per cent commission upfront on the drawn loan amount, and a trail commission of 0.15 per cent annually.

NAB’s latest changes see the amount of commission the bank can claw back from brokers if a mortgage is switched or closed after 14 months drop to 46 per cent from 50 per cent, while after 16 months the new claw back is 38 per cent, also down from 50 per cent. The structure reduces as the home loan stays with the bank for longer, so that at 18 months the claw back is 30 per cent, down from 50 per cent, and at two years NAB can only retrieve 6 per cent, down from 50 per cent.

“We’ve updated our clawback commission structure after listening to feedback from our broker community. The changes will fix a real pain point for brokers by improving the clawback structure,” Adam Brown, NAB’s executive, broker distribution, said in a separate email to mortgage brokers.

NAB’s measures follow similar moves by Westpac and Commonwealth Bank last year to reduce clawback provisions for brokers.

In 2023, the nation’s biggest home lender CBA outlined changes to clawback measures, opted for a tiered structure from months 14 to 24 of the loan’s tenure. That made it less harsh on brokers in terms of the amount CBA could claw back if the loan was discharged or refinanced to a competitor.

Brokers started lobbying more heavily for the changes when some customers were shifting banks more frequently to take advantage of cash-back offers in the market.

Westpac also introduced a revised mortgage broker clawback schedule last year that did away with the provisions after 18 months. That means the bank can no longer claw back commissions if a loan is switched or closed after that period, which was previously two years. ANZ also doesn’t apply clawback rules after 18 months. NAB’s changes to claw back provisions were, however, somewhat offset by cuts introduced this month to higher trail commissions that are in place once a borrower stays in a home loan product for four years or longer. NAB has reduced the trail or ongoing commission after four years to 0.2 per cent from 0.25 per cent, while for years five and six the commission drops to 0.2 per cent from 0.3 per cent. Mortgage brokers have a strong position in the market given the proportion of loans they funnel to banks and other lenders.

The Mortgage & Finance Association of Australia’s latest industry report shows brokers wrote almost 74 per cent of all new home loans in the June quarter, the second-highest proportion on record.

Separately, banks have argued they need to pay their home loan bankers more to compete better with mortgage brokers, which has been disputed by the latter camp.

From October, NAB can pay its own mortgage lenders a bonus of up to 80 per cent of their base pay, up from 50 per cent currently. NAB introduced the measure after rival CBA took the lead on the issue and moved away from Sedgwick Review caps on bonuses for mortgage bankers.

The decisions have raised the ire of the Australian Securities & Investments Commission.

Originally published as NAB joins rivals in reducing clawback rates to mortgage brokers