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A fixed, lender-paid commission is a good prima facie idea, one home loan expert has said, responding to Labor’s recently published broker remuneration position from the royal commission report, but adding that it comes with its own challenges and that “the devil is in the detail”.
Mortgage Choice chief executive officer Susan Mitchell said that, in particular, a fixed upfront commission rate suggests (problematically) that the broker’s work is done once a loan is settled.
She also said that it is likely to change the dynamic of the broker/customer relationship to one more transactional in nature, rather than the widely preferred relationship-based version.
Last week, Labor cooled its initial all-in stance on Commissioner Hayne’s consumer-pays recommendation, arguing instead for a standardised lender-paid flat fee.
“It’s a good start,” Ms Mitchell said.
“A fixed upfront commission rate to brokers that is uniform across lenders addresses some of the conflicts identified; however, more consideration needs to be given to all the work brokers do for customers post settlement.”
Interestingly, Mortgage Choice runs a paid-the-same model, where brokers are paid the same rate of commission regardless of the lender.
Experts agree that shifting the remuneration responsibility from the lender to the consumer could shrink the broker industry and undermine competition in the home loan landscape, pushing up prices and limiting a potential buyer’s access to credit. This could reduce demand and interfere with the structural integrity of Australian real estate.
Co-host of The Property Couch, Ben Kingsley, said that a buyer-pays model could be challenging for mortgage brokers and have a detrimental impact on lending.
Speaking on the Smart Property Investment podcast, on REB sister publication Smart Property Investment, Mr Kingsley said that he’s seen it before.
“I saw the margin squeeze that occurred when competition [in the form of mortgage brokers] came into the market.
“It’s as clear as day in terms of the cost-effectiveness of having competition in a marketplace meant that borrowers pay less. That’s a great consumer outcome.”
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Director of mortgages at Momentum Media Alex Whitlock said on the same podcast that it would be wise to bring consumers in the debate.
“No one’s bothered to ask the borrower,” he said.
Mr Whitlock said that this gave rise to the Momentum Intelligence Consumer Access to Mortgage Report, where 5,800 consumers were surveyed.
He said that the results were remarkable.
“Satisfaction levels for brokers were 96 per cent satisfied or very satisfied, which is phenomenal. I’d struggle to see any kind of service that would rank that high.
“Whereas, you compare with the banks, it was 67 per cent. Not bad, but significantly higher for brokers.
“Also, 95.8 per cent of those surveyed said that they would return to a broker, so almost watertight. The story is very different for those who went to a bank. Only 32 per cent would go back to a bank, with the remainder planning to go to a broker.”
Mr Whitlock said that these findings put the broker value proposition into sharp focus.
“If you’ve got 96 per cent of people who have gone through that channel and are phenomenally happy, it tells you a story about how dissatisfied people are with banks and how valuable [they find] having a broker there to open up an option of lenders, injecting competition into the marketplace.
“And it’s not just about price, it’s about product innovation. It’s about flexibility. It’s about tailoring things to a particular borrower’s needs for a specific property at a particular time.”
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