The Banking royal commission and the outcome for Mortgage Brokers
There are a lot of opinions out there regarding Mortgage Brokers and the outcome from the Banking royal commission. This is my personal opinion and how this will affect me as a Mortgage Broker and my clients.
There are 3 main items that came out of the Commission:
- Mortgage Brokers are to act in the best interest of the client and not seek out loans for clients that favour their financial gain (ie: using banks that pay higher commissions); – I do agree with this and that there are some brokers that may be in the industry to make as much as they can and not be looking after the best interests of the client.
- Trailing commissions are to cease from July 2020 for new loans written;
- Upfront commission payments are under question and in 2-3 years they could look at changing to a fee for service model where the client pays. Why would a client pay to use a broker when they can go to the bank for free?
What I do as a Mortgage Broker?
Aside from assisting clients through the process of buying or refinancing, I find the best deal for the client. Based on their circumstances, certain lenders will be more suited to them. And having a number of options is a very good thing.
When the Commissioner asked the CBA boss “are there any ongoing services supplied by a mortgage broker that warrant them being paid trailing commissions”. His response…”No, they are being paid money for nothing”.
As a Mortgage Broker, I service my clients and any of their requirements they need throughout the year. Do I get paid for this? NO. I work with clients throughout the year to get them to a place where they can buy property. Do I get paid for this? NO. When the clients expiry dates come up and if it is beneficial for them to stay with their current bank and I renegotiate a better rate, rather than refinance. Do I get paid for this? NO
If I get a loan in place for a client and their circumstances change where they need to sell a property or decide to pay their loan out within the first 2 years, we are required to pay back commissions that have been paid. So. essentially I work for free.
Mortgage Brokers can do a lot of work with clients on loans with advice on what they need to do to have the best chance of getting a loan approval. They may decide to go to the bank directly or not proceed at all. Again, I am working for free.
I do not get paid on anything until a settlement goes through and some deals can take months. In what other industry can this amount of work be undertaken with no payment? I’m pretty sure the big bank bosses will NEVER work for free and have their huge executive salaries to fall back on.
What this all means…
So, as Mortgage Brokers we currently get paid by commissions by the banks. These do not affect you, the client in any way. It does not increase your loans costs OR interest rates.
If these commissions are cut, what will this do? It will increased banks already substantial profits and will decrease competition within the market. This could result in increased interest rates and the big banks will get the higher market share.
Did you know that there are 20+ financial institutions out there that you can get finance from? A lot of these do not have a branch network which means less overheads. Because of this they are able to provide lower interest rates.
The Mortgage Broking Industry allows for “healthy” competition with the banks. Without this it could also be detrimental to some financial institutions that receive up to 80% of their business from the broker network. Again, reducing competition.
Throughout the RC the big four banks have been bought into question regarding their unconscionable behaviour and conduct. How can they then point the finger at Brokers and say that we are not working in the best interest of the clients.
I have and always will work in the best interests of my clients. Having been in the industry for over 20 years I have seen a lot of competitive behaviour from the banks…. and again it would seem as though they have won. But, we won’t go down without a fight and will continue to hold out heads high as we make a difference in this industry.
Boom turns to bust for Brokers
If you don’t know what a Mortgage Broker can do for you, please feel free to contact me for a chat. Alternatively if you have a current home loan and want to see if YOUR bank is looking after you – I would be happy to provide and obligation FREE consultation.