PROPOSED changes for mortgage brokering would not only reduce competition but leave brokers with no other choice but to charge hefty up-front fees, financial planner Russell Tym said.
The banking royal commission’s final report was handed down this week and it included a radical shake-up of the brokering industry which arranges more than 50 per cent of all new home loans.
It suggested the borrower, not the lender, should pay mortgage broker fees; brokers should be subject to and regulated by the same laws as financial advisers; and mortgage brokers must act in the best interests of the intending borrower.
The public at large don’t understand the cost of running a business and they expect a lot for very little money.Moneylink Financial Planning's Russell Tym
Moneylink Financial Planning’s Mr Tym said while brokers currently receive an initial commission from the lender, they also receive a trail commission for the life of the loan.
He said trail commissions were “an easy target” by the commissioner and his final report recommended lenders be prohibited from paying them to brokers.
As an example, a mortgage broker receives 0.6 per cent commission from the lender, so on a $300,000 mortgage they would receive $1800.
However, a trail commission of around 0.2 per cent of the full debt borrowed is also paid by the lender to the broker for the life of the loan, which with a typical 30-year mortgage of $300,000 would see the lender pay the mortgage broker $600 a year, or $18,000 over the life of the loan.
“I think people would be surprised to know that trailing exist,” Mr Tym said.
“The public at large don’t understand the cost of running a business and they expect a lot for very little money.”
Mr Tym said statistics show on average people move their home loan to a new lender every seven years.
“If he [the broker] doesn’t get $600 a year [the 0.2 per cent trail commission], he’s going to need $3000-$4000 up front,” he said.
Mr Tym said he was concerned if the federal government adopted the commission’s recommendations, the introduction of such a large up-front fee by brokers would deter people from using them.
“I think it would reduce competition and there’s more of an oligopoly if they’ve [the major banks] got 80 per cent of the business now and if there’s no brokers they have 95 per cent of the business,” he said.
“It could lead to them increasing interest rates and charges. I would think it would be very worrying for mortgage brokers.”
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