I’ve had a host of questions on what the implications of the Royal Commission are so I thought I’d write a post to address this, given there are some important issues that could impact the entire lending market. For those unaware, the results of the Royal Commission into Banking Misconduct were released early last month.
Firstly, the good news is that there isn’t any further large scale reform recommended in regards to slowing down lending or limiting what people can borrow. The way lenders assess loans for serviceability and the like are not set to change.
Secondly, there was a recommendation for broker commissions to be abolished and instead replaced with a fee for service that you as the consumer pays the broker to use their service.
I want to be clear that I don’t believe this is a good customer outcome, and this is why:
1) Currently, commission is paid by the lender to the broker. Effectively, a broker for them is a 3rd party sales force that they don’t need to pay wages to, and is only paid for bringing business to that lender. Moving to a fee for service that the consumer pays, means that the lender effective now pays nothing for a broker originated loan.
2) In theory, this should come through in lower rates, but there is a problem with this. The problem, is that smaller lenders (like Macquarie for instance) who offer in many cases better rates and service rely on brokers for 90%+ of their business. Without large volumes of loans coming through brokers, they will not be able to sustain their lending businesses.
3) If this happens, then competition will reduce and business will consolidate back to the major players. If the majors have more market share and less competition, it is more likely that credit will become more expensive for everyone.
Over the period 2001-2007 the mortgage broker channel has contributed to a decrease in nett interest margin of the big four lenders of 3%, so brokers benefit all mortgage holders. (Source –KPMG Major Banks –Full year 2017 Results Analysis)
The conversation has been elevated and as a result things are looking better since the announcement. Both political parties have agreed in principal that fee for service should not occur and commissions should remain. Only yesterday (12th March) the Liberal party has delayed a review on trail commission for another 3 years, which I think is the right move. The conversation will need to continue to ensure broking remains viable, and the government does not implement anything that will end up with reduced competition or an adverse outcome for customers.
No obligation, but if you’re interested in learning more about the proposed changes and registering your support behind mortgage brokers please feel free to look up the campaign (https://www.brokerbehindyou.com.au/) in the below link, or drop me an email.
So with this uncertainty over the mortgage broking industry I wanted to clarify what it means for my business:
• It is business as usual – we are still committed to providing great service and solutions for all our clients.
• We are investing back into our business – starting with our new website which has just gone live last week.
• We will also be introducing new IT platforms and infrastructure to make things easier and more efficient for our clients.
• We are further diversifying our offering – so in addition to residential loans we are able to offer:
o Car Loans
o Asset & Equipment Finance
o Unsecured / Cashflow Loans
o Self-Managed Super Fund Lending
o Commercial Loans
That is all I’m going to say about the Royal Commission – but feel free to send me any questions you have. Otherwise, I look forward to working with you on another successful year ahead!