The final report from the banking royal commission is imminent and mortgage brokers and small lenders say if it leads to an overhaul of broker fees it could be bad for borrowers and good for the major banks.
According to some, a shift to a flat fee model and the axing of trailing commissions would see some brokers go out of business, a reduction in competition and higher profits for banks.
Mortgage brokers largely expect the final report to recommend lenders or customers start paying brokers a flat fee at a lower rate than the current upfront and trailing commission system.
The move to a flat fee would be designed to avoid brokers signing up home loans that are too big for customers to repay to increase their own earnings.
Mark Haron is the director of Connective and spoke to Australian Financial Review about the commission structure.
“Moving to a flat fee is going to have significant ramifications for competition, which is not just about rates but access to credit for everyday Australians,” he said.
“Commonwealth Bank will be the largest beneficiary of that.”
“They might be able to turn things around in their favour as a result of this royal commission.”
The percentage of home loans written by brokers has actually risen by around four percentage points since the royal commission began and is sitting at a record high of 59.1 per cent.
Of those, one in three mortgages recommended by brokers is with a smaller lender.
Chief executive of the Mortgage and Finance Association of Australia, Mike Felton, said a flat fee structure would give more power to the big banks.
“Moving to a flat fee will entrench bank power in an industry where this has already been moderated,” he told AFR.
“It will hand power back to the big four. It will destroy the broker channel and cut off access to small lenders, reducing access to credit at a time when it has become incredibly tight.”
“Brokers play a systematically important role in the redistribution of credit demand. A flat fee will see them turning away more complex files.”
“It would provide an existential threat to the broking industry, and the main winners will not be consumers but Commonwealth Bank and Westpac – the banks with the biggest market share and largest branch network,” he told AFR.