Mortgage brokers are reeling and angry today after the banking royal commission final report put the industry on shaky ground.
Brokers warn that if the move to cut trailing commissions as recommended in the report goes ahead it could cause upfront commissions to rise as well as the cost of loans.
The Federal Government says it will look to implement to change to trail by mid next year but would most likely hold off on banning upfront commissions and swapping to customer-pays in the short-term.
The Hayne final report said it is the borrower that should pay mortgage brokers’ fees rather than the lenders.
The Government says it will hold off on the change to upfront commissions for three years which brokers were no doubt relieved to hear today.
While this was good news for brokers, they say if they lose their trailing commissions they’ll have to renegotiate terms with the banks and that could mean higher upfronts.
“We are certainly disappointed with the outcome,” Finance Brokers Association of Australia CEO Peter White told Australian Financial Review.
“A trailing commission is really a deferred upfront fee and is part of the legal agreement.”
“The impact will be upfront commissions and interest rates going up.”
Mortgage and Finance Association CEO Mike Felton says getting rid of trail goes against the advice of both Treasury and ASIC, and reiterated that upfront fees would have to rise to compensate.
Mr Felton told AFR a user-paid fee structure was a concern.
“That would be a shock to the system,” he said.
“Even if banks have to charge a fee equivalent to the cost of doing a deal internally, as the report suggests, their marginal cost is lower than a broker due to economies of scale, so banks will inevitably undercut the brokers.”
“This could end up forcing customers to bank branches and entrench the big bank power, while making it harder for customers to access credit.”
The moves are certain to shake the industry – an industry that currently settles nearly 60 per cent of all mortgages in this country.
