Will sense prevail in Royal Commission recommendations?
The Banking Royal Commission was supposed to defend the average Aussie, but instead recommended to hit them with a new fee. We hope common sense prevails, and consumers aren’t left to be the big losers in all of this.
Loan Market’s fearless leader, Sam White, has rallied with the industry in opposition of the customer-pays recommendation, because consumers shouldn’t have to pay for something they now get for free. Someone has to stand up for all the Aussies trying to get onto the property ladder.
Since Labor has come out against the customer-pays model, we are cautiously optimistic that both sides of parliament have come to the party and recognised the disastrous implications of making customers pay thousands for home loan advice. The banks have received their invitation as well, and we hope they turn up.
Instead of broker fees being paid by lenders, Commissioner Hayne suggested customers pay the fees. The consequences of these recommendations are significant - they would result in a lack of choice, less competition in the home loan space, and thousands of extra dollars that borrowers would have to pay to get a home loan.
In changing the current model to the Hayne recommendations, the only certainty customers would have had, is they would soon pay for something they currently get for free. The result would be customers less likely to use a broker in favour of going to their bank, where fees would not be payable, leaving them little choice, or leverage, to find a better rate. In the December quarter alone, less than half of all Loan Market loans went to the Big Four. Many of the lenders on our panel only deal with customers via brokers.
We welcome the Liberal Government’s stance to prioritise competition in the Australian banking system and resist the pressure to implement all of Haynes findings.
Labor has also backed lender-paid commissions - an industry-wide upfront fee of 1.1 per cent of the home loan. Labor said it recognised ‘that moving to a customer-pays model in mortgage broking poses real risks to competition in the banking sector.’
This means Aussie borrowers can continue to talk to someone who can guide them through what has become a minefield when securing money. And they can still do that without having to pay a fee.
At the moment, our fees are paid by the lender the client chooses. The lender pays part of the commission upfront and the rest in increments (or trail commission). This way of paying brokers - some upfront and some later, was a bank initiative, to avoid paying the whole lot up front and keep their bottom line looking healthy for shareholders.
The new industry-wide upfront fee both Labor and Liberal favours also means that the fees lenders pay brokers will be the same across the lender panel so that there will no perceived bias in a broker recommending one lender over another.
This change is coupled with a new best interest duty that was recommended by the Royal Commission. It’s one that we actually asked for and that the industry broadly supports. We believe it’s that focus on customer outcomes that has resulted in 60 per cent of Australians preferring a broker over a bank.
It remains to be seen how the banks will respond to Labor’s recommendations. At the time of writing, there was no official response from them. If you want to discuss this further with me, feel free to give me a buzz.