Home loan customers may need to pay mortgage brokers to save money

y business reporter Daniel Ziffer

A house for sale seen in Canberra
Almost 60 per cent of Australians use a mortgage broker to arrange their home loans.(AAP: Lukas Coch)
Borrowers may have to pay an upfront fee when their home loan is arranged, in a move applauded by consumer advocates but which mortgage brokers say would devastate their industry.

The new fee, one of the most contentious changes recommended by the final report of the Hayne royal commission, would kill off one of the key methods brokers are currently paid — an arrangement commissioner Kenneth Hayne rubbished as “money for nothing”.

Currently, most brokers are paid an upfront commission by the bank that finances the loan. The banks then also pay an ongoing fee, called a trail commission, over the life of the loan.

Under the commissioner’s recommendations, both commissions would both be gone within three years.

Instead, a customer would pay an upfront fee for the arrangement of the loan — whether through a broker or directly with a bank — which will likely be loaded into the total sum of the mortgage. There would be no ongoing fees.

Brokers ‘thrown under the bus’ by royal commission

Sydney mortgage broker Terri Unwin cannot understand why the royal commission has targeted her industry for change, when so much of the evidence at the inquiry was about bad behaviour from Australia’s big four banks: the Commonwealth Bank, Westpac, ANZ and NAB.

“We were completely blindsided by the fact that, yes we write 59 per cent of the business, but we represent less than 1 per cent of the complaints about banking and finance,” she said.

Each year more than half a million Australians use a mortgage broker to guide them through the process of arranging a home loan.

The big four banks rely on the services of brokers to different extents. Some, such as the Commonwealth Bank through its ownership of Aussie Home Loans, are in the market of providing loans and helping customers find loans with their rivals — although CBA is in the process of divesting Aussie.

“The banks have been rewarded for their bad behaviour,” Ms Unwin added.

“If they don’t have to pay mortgage brokers anymore, that’s close to a billion dollars in savings to the banks over the next five years.”

Some analysts estimate it may be much larger than that, with fund manager and AFR columnist Christopher Joye putting the savings at closer to $2.6 billion per annum.

Commissioner Hayne was scathing of current arrangements for paying brokers.

“The borrower, not the lender, should pay the mortgage broker a fee for acting in connection with home lending,” he argued.

“Changes in brokers’ remuneration should be made over a period of two or three years, by first prohibiting lenders from paying trail commission to mortgage brokers in respect of new loans, then prohibiting lenders from paying other commissions to mortgage brokers.”

Trail commissions were singled out for special condemnation.

Under the new plan, borrowers would pay a fee of around $2,000 when they secure a mortgage, no matter if it is through a broker or directly with a bank.

Brokers fight back with ad campaign

The industry is not accepting the changes. The peak industry body for more than 13,000 finance brokers, the Mortgage & Finance Association of Australia (MFAA), has launched a campaign aimed at convincing the Federal Government to delay or diminish the changes.

A video advertisement shows a family walking down an increasingly dark corridor, with doors closing ahead of them, forced into the arms of a demonic-looking banker.

In a statement, MFAA chief executive Mike Felton said a ban on commissions would crush the broking industry, drive up the cost of borrowing and represented a “massive win” for Australia’s dominant big four banks…





This article is from ABC News, you can read the full article here: