Australia’s mortgage broking industry looks set to be upended if policy follows through on some of the key recommendations of the Hayne royal commission, including a complete ban on trail commissions and, eventually, a ban on all commissions to brokers.
Instead Hayne proposes that borrowers pay a fee to the broker, which would mean the interest of the broker becomes centred on the person trying to buy a house.
An obvious criticism of that is it means it may be harder for borrowers to find the best rate, given that mortgage products can be hard to understand and comparison of products is challenging for laypeople. In turn this potentially makes it easier for banks to charge higher, more profitable interest rates — and this is exactly what mortgage brokers are warning about now.
The industry’s representative body, the Finance Brokers Association of Australia (FBAA), is furious, and says the royal commission wants to “destroy some 20,000 small businesses”.
FBAA managing director Peter White said in a statement that while “today should be the day of reckoning for big banks who have spent far too many years putting profits above people … [instead] the result of eliminating trail commissions could realistically mean interest rate hikes.”
An excerpt from the statement:
“This could force up-front commissions to rise in order to compensate for reduced revenues to brokerages, which in turn will lift interest rates and make housing affordability more difficult,” he explained.
He also slammed the recommendation to eliminate up-front commissions, and congratulated the Government for not reacting to this.
“Commissioner Hayne wants to hand even more power to the big banks and eliminate competition, which is a ridiculous scenario and shows just how out of touch he is when it comes to brokers.
“If a user-pays model was implemented, we know that most borrowers wouldn’t pay, and banks would make more money and standards would drop further.
“It’s very disappointing that the royal commission wants to destroy some 20,000 small businesses for the monetary gain of the big banks, and we trust the Government will see clearly on this and continue to work extensively with our industry to improve consumer outcomes.”