Mortgage broking bombshell
Last month the news for Australia's mortgage brokers was all good, three weeks later their industry is under threat.
Greg Hill of Greg Hill Finance said the Banking Royal Commission dropped a bombshell on the mortgage broking industry.
"Last month we received a report outlining how six out of 10 customers were using mortgage brokers for their home loans,” he said.
"That told me our business model was working.
"Then without any consultation with the mortgage broking industry, the Commission recommended changing the way brokers get paid.
"The report recommended a ban on banks paying both upfront and trailing commissions to brokers and moving to a customer pays model.
"Mortgage brokers would have to charge customers a fee for the loan services they now provide for free.
"If the government takes on all the recommendations from the Royal Commission it has the potential to decimate the mortgage broking industry within three years.”
Mr Hill said it was inferred at the Commission that brokers weren't doing anything to earn a trailing commission.
"Originally there was no trailing commission on loans and we had larger up front fees instead, all paid for by the bank, not the customer,” he said.
"To encourage us to provide an ongoing service to the client and be remunerated, the upfront fee was cut back and a trailing fee was introduced.
"Effectively it was a deferment of the upfront fee.”
"We're available 24/7 for our clients if they want to call, and they often do.
"It's not like we don't do anything, there's a lot we do.”
He said the Royal Commission was called to investigate misconduct into the Banking, Superannuation and the Financial Services Industries.
"It was primarily aimed at our big banks when it was uncovered they'd done some terrible things such as the fee for no service scandal,” Mr Hill said.
"Somehow we've come outthe biggest losers.
"Over the last few years plenty of government bodies have reviewed our industry and all have agreed there was no need to change the current model.
Currently the government has announced there will be a ban on trailing commissions on new loans from 1st July 2020 and they will review the move to a customer pays model and no upfront bank paid commissions in three years.
"Under that model, if fully adopted, we'll have to charge upfront fees directly to our clients for the loan services we provide,” Mr Hill said.
"Even my most loyal customers won't want to pay a fee for a service they used to get for free.”
"I'm sure the industry will adapt but I don't see any winners here other than the big banks themselves”.