Mortgage brokers say commission backflip will benefit all
MORTGAGE brokers in the region are left with a bitter-sweet victory after the Federal Government backflipped on a key recommendation from the banking royal commission to scrap trail commissions for new loans.
Trail commissions are when banks or investors pay mortgage brokers for the duration of a loan to provide incentive for the advisor to review his clients' holdings and to give advice to keep their business.
Advocacy from the industry and smaller lenders including Fraser Coast branches of Mortgage Choice was responsible for the policy ditch with claims it would harm the industry, reduce competition and put many out of business.
However the promise by the coalition to keep trail commissions and hold a review in 2022 only stands if they maintain office in the coming election after Labor pledged to abolish the commissions and allow brokers to charge an upfront fee.
Wide Bay MP Llew O'Brien, who was among those to spearhead the push for the Haine royal commission, confirmed the government's quick response to adopt all 76 recommendations was to ensure "stability and certainty" in the share market.
"Two aspects of the recommendations related to mortgage brokers," he said.
"One was moving to a borrower pays system as opposed to lender pays system and the other was axing the trailing commission - a commission which continues to be paid over sometimes the life of the loan.
"In response, it was very clearly communicated to us the devastating effect this would have on new home buyers, mortgage brokers and competition in the industry."
The original recommendation was to replace the trail commission with upfront fees paid by the borrower instead of bank based. Mr O'Brien said he had spoken to about seven different mortgage brokers from Maryborough to Coolum.
"This alternative approach would be beneficial to the four big banks and not to the borrower which is the exact opposite of what it was trying to achieve," he said.
"The decision (announced on Tuesday by Treasurer Josh Frydenberg) not to eliminate trail commissions and review the situation in three years was based on listening to economists and the industry.
"The big banks have proven they can't be trusted. We want competition and this would only put more responsibility and business into their hands and taking away locals' choices."
The proposed 2022 review would be undertaken by the Council of Financial Regulators and the Australian Competition and Consumer Commission.
Hervey Bay's Mortgage Choice franchisee Peta Short, who has 19 years' experience in the industry, said taking away trail commissions ultimately hurt those applying for home loans.
"Taking it away would mean smaller banks with limited or no branches in the area who rely on mortgage brokers to get business would not be available to those seeking a loan and their options would instead be left to the branches they could walk into," she said.
"The arrangement was made with the banks where they paid a lower upfront fee and then an ongoing trail commission to make sure loans didn't go into arrears and we kept looking after people as time went on.
"This included things like helping with top ups, pricing and better interest rates.
"It's detrimental because locals would then walk into a local bank and be given what they are given not given the option to shop around for the best deal or interest rate.
"It may be the local branch wouldn't do the loan for them anyway and they would be declined."
Ms Short said Mortgage Choice already worked in the borrower's best interest and were paid the same from different banks.
"This means we don't have favouritism towards one particular bank, however some brokers are owned by individual banks which means they get greater commission depending on who the loan is with," she said.
"Keeping trail commission is better for customers because keeping brokers going means it is a stronger and more competitive market between all banks. It also keeps local jobs, there are eight of us in our business and then of course there are the flow on effects."