Value of mortgage brokers business post royal commission

Indeed. If refinancing becomes more difficult books might last longer and might become more valuable. It’s hard to see that happening in the short term with all the potential changes which might happen.

 

brokers have a hard time, and many are pretty hopeless but if you find a good one who has experience in property investment they can make sure you get the correct structure to use the banks money to build you wealth and protect your family home

 

When are results of the RC due?

 

Exactly, the big 4 banks have an extensive branch network to fall back on, unlike much of their current competition who rely on their broker channel. The loss of brokers hurts the big 4 the least.

The big question is will Hayne see through this or will he be manipulated into thinking the loss of the broker channel is best for the consumer? The cynical part of me suspects the big 4 banks have planned this from the beginning.

 

I have to say, before I used my current broker which is in this forum, I found most of the mortgage brokers are quite useless, and in many ways, I could have done it myself.

When I bought my first property (my PPOR), I used one which is the BF of my friend. He was a terrible broker, filled in the documentation incorrectly, got the name wrong, and could have been a big mess if not corrected. Luckily my lawyer who was also my friend, followed up a lot to get this fixed .....

The one I used now is much more responsive and better in terms of providing options. It is definitely something I could not do myself so I can see it as value add. So if it later becomes pay for services I don't mind paying for it. Then the next question is whether the fee is tax deductible if the fee spans both PPOR as well as IP loans?

 

Would need to be apportioned.
Also only deductible over 5 years as a borrowing expense.

 

Unfortunately you're probably the minority consumer segment here @kamchatsky.

I don't believe recognition of the value that mortgage brokers bring to the table is common enough among the general population for the fee for service model to be viable. Especially considering how many people still don't use brokers under the current model (mostly non-fee).

I haven't looked into how the fee for service models work overseas, but it wouldn't surprise me if there was a lot more churn, especially if there weren't any clawback consequences?

 

From my readings churn is higher with loans being turned over every 2 years on average I believe. Aus is around 5 year average.

To make it viable brokers also offer risk and other insurances and this is what I am implementing in preparation for what ever changes the powers that be cast on us.

 

I've read somewhere that the UK has about 80% of loans originated via brokers. They receive a very high upfront commission (about 2-3 times that of Australia). No clawbacks and churn is a huge problem for them. Similar outcomes in Canada.


Personally I think that in the long term, mortgage brokers in Australia are very well remunerated. Initially it's very tough as the upfront commissions don't always cover costs and it takes a lot of effort to get the momentum going. In the long term the trail kicks in and brokers can make a lot.

For most people, the more they earn, the more likely they are to act in the best interests of others. Once your needs are being met, you can afford to be charitable. If however someone is under financial pressure, they're more likely to put their interests first when it comes to a conflict of interest.

Or course there's exceptions to this observation in any industry, but on the whole I believe most brokers are trying to do the right thing by their clients. This is supported by the facts that broker market share is steadily growing and formal ombudsman complaints about direct channel loans outnumber broker loans by seven times.

Thus far I've yet to see a proposal for broker remuneration that wouldn't result in a significant pay cut. Furthermore every proposal seems to be to the benefit of the banks as they will be the main beneficiaries of those pay cuts, not consumers.

 

That's true, however I'm wondering about the non-major banks that don't have many (or any) physical branches (AMP, ING, Macquarie, ME etc). We haven't heard much from them lately.
If a change to broker remuneration resulted in a mass exodus of mortgage brokers, surely that wouldn't be a good result for them?

Perhaps they would just have to rely on their own mobile brokers or revert to low cost online models like U-Bank (NAB).

 

If cba really wanted to have upfront only they’d offer a no frills loan at 3.2% (or whatever their cost of funds is plus .25% margin) and offer to pay brokers $1500. They wouldn’t need any of the rest of the banks to agree, or whatever guff ian Narev rabbitted on about.

Trouble is their profit margin is currently higher than that, they can’t stand the thought of true competition as it reduces their margins.

 

The Draft is due on 30th of Sept 2018 and final report is due 1st of Feb 2019

 

https://money.usnews.com/investing/...broker-fees-banks-mortgage-business-face-risk

 

Somehow I can't see that lenders would pay a large enough flat fee to make mortgage broking a viable business.

Even if they did, it only creates further conflicts of interest. Continuously moving loans from one lender to another (churn) usually doesn't work well for borrowers in the long term.

The ridiculous thing in this entire discussion is that nobody has identified any systemic problems with the current commission model. They've argued that there is a possible conflict of interest. All the evidence suggests that this isn't actually occurring, in fact quite the opposite.

At the end of the day, if consumers felt that there was a conflict of interest, they would simply use direct channels. Nobody if forcing people to use a mortgage broker. Instead the broker market share has been consistently growing. Perhaps they should be asking why brokers are gaining and the bank direct channels are loosing market share?

 

Mortgage broking didn't really exist 20 years ago. Its an industry that peddles larger loans and takes a fee. But it does provide a service thast does benefit borrowers. Sometimes. That has to change to a fixed fee or base fee basis with a purge of the quantity. Property value and loan size has risen beyond that of cost inflation.

Why should a lender pay $500k pa to a individual if they can slash it 50%. There will b pain ahead but good brokers will prevail. Small players will b culled. Its financial planning of the 8os

ASIC questioned whether consumers have taken true benefits from brokers. Or it's easier credit. Overall does the broker fee exceed savings? ASIC didn't see it. But lenders saved massive costs for lending staff. But that doesn't directly benefit consumers. Only shareholders. Banks seemed to have outsourced writing loans and now don't want to pay using old maths. The formula needs a rewrite

 

And what do you think would happen if banks were required to employ more lending staff to write loans? Do you think they would accept lower margins or pass the added on cost to the consumer?

 

So Mortgage brokers have an incentive to offer bigger loans because they get paid a commission but the Big 4 banks don't have any incentive to offer bigger loans?

I know you are just the messenger thydzik but that concept is flawed.

If they kill off mortgage brokers by removing commissions the big banks will be laughing and consumers will be the losers.

I am no expert but the Big 4 seem to have too much power in this country and I can't help but feel this whole royal commission is going to make decisions that are dressed up as good for the consumer but really benefit the big 4.

 

This biggest issue in the discussion is that regulators/media are acting as if there is a systematic issue with the current remuneration model. The reality is that there is no data to suggest there is and there is merely the potential to be a conflict of interest. You would think if the majority of brokers were doing the wrong thing that there would be hard data unveiled to support this during the ASIC review into broker remuneration last year?

Facts:

• More consumers are using brokers because they see the value
• There are a small number of cowboys in broking. Like every industry.
• There are far less consumer complaints for loans written by brokers vs bank direct
• The big banks are clearly looking to reduce broker numbers (hence keen for fee for service) as they will instantly gain a far larger market share due to the smaller lenders not having a branch network to compete.
• Less competition in lending will mean greater margins for the Big 4 and higher costs to consumers.
• No matter what the remuneration model there is going to be potential issues. Why change something just because there is potential for conflict? Should all professionals like lawyers, accountants, electricians etc be enforced to charge a fixed fee because when on an hourly rate there is the potential to work slower and cost the client more?

 

Also it's my understanding that the mortgage broking industry is fairly well regulated. Aren't they audited at times to ensure everything is above board?