In light of the Banking Royal Commissions recommendation to have the upfront commissions currently paid to mortgage brokers by lenders changed to a fee for service model over the next couple of years, can we ask:
Do people believe consumer’s would be prepared to pay an upfront free to a mortgage broker to help them obtain a suitable home loan?
What impact would such a change have on consumers?
What impact would such a change have on the home loan industry?
Consumers wont pay a fee, they will go straight to the lender, why pay a fee when they dont at the lender? Bit more work but the fee will be worth it.
The change for consumers will be less choice as pre 1980s where they paid higher rates for lower LVR loans and have a choice of 4 or 5 lenders.
First home buyers and people with difficult credit situations will be lost to the market.
Small lenders will have to beef up their online presence as their only presence in the market. No one in the middle to explain to the borrower the ins and outs. No one to help families with their goals and dreams.
The fee wont be enough to cover the costs for the broker so brokers will leave or are already planning to leave. Home loans will reduce in variety and be harder to acquire. there will be a credit squeeze. There is already a credit squeeze.
Rates will rise . Big banks will gain their market share back of the little lenders and there shareholders will be delighted, are already delighted, as the banks sneaky strategy has worked for them. They dont want brokers. they want market share.
if the banks have the same upfront fee requirement included in the loan application, many may be willing but as many of the banks will offer things like fee rebates, brokers will be cutout. yet to understand how adding fees to the loans, ontop of stamps duty and LMI premiums will be assisting the consumer.
Banks are not impressed that nationaly brokers are now responsible for 60% of loan applications
As was the case after the GFC, banks will benefit. by cutting the brokers out of the industry the majority of lenders who rely on brokers for their business, will have to close or increase their costs by opening branches. this will just reduce the competition. allowing the banks to further increase the profit margin over the RBA rate. this mark up has increased by about 3% over pre GFC, how much will it increase when they have gutted the industry?
Banks have already become more selective over who they are lending to. I suspect those with the funds will be able to borrow more for investments propertys, while those on lower incomes will be stuck in the rental traps paying an ever increasing rent.
Due to a reduced construction market the economy will stagnate and we will be in a far worse place then we are now.
The broking industry is responsible for many hundreds of thousand jobs. Many are people in their 50s and 60s. Many of these people were relying on selling their businesses to assist with their retirements, if these recomendations proceed, many will lose their businesses and employment and have little or nothing to retire on. All at no fault of their own. The commission was supposed to penalise the banks behaviour not reward them? As per usual the public will lose out.
Thank you for opening up this discussion on this forum.
A number of clients have spoken to me this morning about this and the general consensus is that although they value the service brokers provide, they don't want to pay an upfront fee to a broker when the lender they choose is currently doing that and don't see how this would benefit consumers if a fee for service model was mandatory.
Some of the impacts on consumers and the home loan industry I can foresee are:
- It will become more costly or difficult for consumers to access smaller lenders which are heavily reliant on brokers, especially in regional areas
- Less access to smaller lenders will in turn reduce competition for the larger banks which is likely to have negative consequences for consumers
- Increase in costs for consumers to obtain credit either due to upfront costs or via reduction in competition
- Less tailored information available to consumers
Home Loan Industry
- Removal of upfront commissions will very likely just increase profits for lenders while putting a question mark on the viability for many mortgage broking businesses
- Removal of trail commissions will essentially devalue every mortgage broking business and again, very likely to increase lender profits
- Smaller lenders will most likely lose market share as they are somewhat reliant on brokers
- Larger banks will most likely increase market share
The only "positive" I can see is for a fee for service model is that it would remove the perceived conflict of interest that the productivity commission has already found to have no systemic harm to consumers. In fact, they found the opposite.
I don't for a second dispute that there are bad eggs in this industry (as with any) and I 100% support any fair and practical action to weed them out but in my humble opinion, changing to a fee for service model would have a "net-negative effect" for consumers and the over all industry which I don't believe was the purpose of this Royal Commission.
I truly hope that which ever government is charged with taking action, does so with consideration to the actual real world implications and not use this blindly as a political maneuver.
For now I will continue doing what I believe in, the best I can, until such time it's no longer viable or I don't believe I'm providing value.
Prior to 1920 the Michelin Guide was free. Then the company placed a price on it, reasoning that "man only respects that which he pays for"
Unfortunately most people dont draw the connection between what they pay to the BANK and what the bank pays to the broker. The Bank pays the broker a fee: which is nothing other than the payment of a fee to the broker for the service of connecting the client to the bank so the bank can lend the client a truckload of money and charge the client interest.
And because the clients dont see the cost being ultimately borne by themselves, they hold no value for the service.....
The bank "absorbs"this cost.....but the reality is that all the costs associated with providing funds to willing customers are passed on in the interest, fees and charges paid by the customer over the life of the loan.
So lets all assume that in our new Utopian society where everyone pays for their own broker "up front": lets say the broker gets $4000 on a $500k loan. And the bank doesn't have to "absorb"this cost........And the loan term is 25 years........the bank would presumably reduce your fees by this amount amortised over 25 years......or roughly $3.05 per week. Do you reckon the bank is ACTUALLY going to reduce your bank fees because they didnt pay a broker?????
The reason I would use a broker is because I would expect the broker to:
a) find me the best rate
b) negotiate with the bank on my behalf
c) provide a clear and simple system and service so as to reduce the workload on myself
Your potential savings by using a broker could easily cover the costs of using him or her........
Graham Doessel - CEO - MyCRA (Specialist Credit Repair) Lawyers (LPH)
Current Rating: 4.65 / 5
I believe it depends on the service being offered.
I charged a brokerage (over $5,000) on formal approval from 2005 to 2009
I have clients chasing me as I am technically a broker (but I don't have time to write loans) that are willing to pay the fee for the service I provided in the past.
What will you do differently that makes the fee charged insignificant to the value offered for that fee? That's the question.