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Banking Royal Commission – What these changes will mean for you

The Royal Commission has uncovered numerous examples of misconduct at some of the highest levels of Australian banking, but in an extremely disappointing twist, it is mortgage brokers and our valued customers who are likely to be the key group to be punished in the wake of the report. Also set to feel the pain are smaller lenders without a large branch network, who currently rely on the broker channel in order to survive. Meanwhile, the Big 4 banks enjoyed one of their largest share price increases in the last 10 years since the report was made publicly available.

The final report, which was released on Monday 4th February, contained recommendations urging sweeping changes in relation to the payment of mortgage brokers, in a move that Mike Felton, CEO of the MFAA (Mortgage & Finance Association Australia) has described as a “mortal blow” to the mortgage broking industry.

The proposed changes are to include a ban on bank-paid trailing commissions to mortgage brokers, effective 1st July 2020. This is to be followed by the complete abolition of bank-paid up-front commission payments to mortgage brokers in three years’ time, which would then coincide with a move to a “borrower-pays” system. Under the borrower-pays model, you (the consumer), would then be required to pay an up-front fee – whether to a broker or to a bank – to have your mortgage arranged. In other words, you would be forced to pay approximately $3000 in additional up-front fees for a service you currently receive for free.

Whilst brokers and consumers have been given a rather large whack with the Royal Commission stick, the big banks appear to have been given a free kick instead. In addition to being given the opportunity to cripple their competitors (mortgage brokers and smaller lenders), they also stand to benefit by saving an estimated $2.6 billion annually as a direct result of the abolition of bank-paid commissions to brokers. Oddly enough, there were no recommendations handed down by the Royal Commission to force the banks to pass any of these savings back onto the consumer via reduced interest rates. On the contrary, you may see banks raise their prices in the long term, meaning your loan may become even more expensive.

If the final report’s recommendations are legislated, these changes will cost you. They will eliminate competition, they will make access to home loans harder and more expensive for millions of Australians and they will decimate the mortgage broking industry – jeopardising thousands of small businesses like ours, and the livelihoods of approximately 27,000 people including brokers and their support staff. It is worth remembering that our industry was not given the opportunity to represent itself at the Royal Commission hearings, but despite this, or perhaps because of it, mortgage brokers now appear to be bearing the brunt of the misdeeds of the big banks, who appear to have placed profits above decency, honesty and duty, and have, as a consequence, lost the trust of the Australian community.

In almost three decades, the mortgage broking industry has fought tooth and nail to bring competition, fairness and choice to the Australian finance market. The success of these efforts has been demonstrated through lower interest rates and reduced market share of the dominant Big 4 banks. This has benefitted all borrowers, regardless of whether they engaged a mortgage broker or dealt directly with a bank for their mortgage.

Today almost 60% of all home loans in Australia originate with a mortgage broker and that number keeps growing. If you’re part of this statistic, if you value choice and competition in the finance sector, and if you do not wish to pay an up-front fee for your mortgage in future, I urge you to pledge your support and take action to prevent these changes from being legislated.

Here’s what you can do to help:

• Click on the link to sign the MFAA petition, and send a pre-filled e-mail to your local member of Parliament.
• Click on the link to sign the petition.
• Watch what Auctioneer Stu Benson has to say about how these recommendations will affect you.

We would like to thank all our valued clients for your support during this difficult time.

Brigid Kelly – Director

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