A call to scrap all mortgage broker commissions has been criticised by the Finance Brokers Association of Australia (FBAA) which says consumer groups making the suggestion have no regard for the competitive position and incredible value proposition that brokers bring to home loan borrowers.
FBAA executive director Peter White said it is very concerning when misinformation is disseminated by those claiming to be consumer advocates, but who don’t tell the truth.
“Home loan brokers and the non-bank sector have created a highly competitive and progressive lending environment that didn’t exist before,” he said.
“If interest rate margins of the 1980s still existed today without brokers, home loan interest rates would be around 7.5 per cent not 4 per cent.
“Competition created by brokers has fostered the opportunity for brokers to do work and home visits for loan interviews, create redraw facilities and lines of credit and offset accounts all of which never existed before.”
He said the consumer groups believe current commission structures should be replaced by a flat-fee model and while that sounds fine in part, the reality is it would cause interest rates to rise.
“The average loan amount nationally is around $450,000 and the average commission is 0.60 per cent, meaning a flat fee commercially would be around the $2,700 mark.
“In regional markets where loan sizes are smaller, a loan of $200,000 would in the current structures pay around $1,200 and not $2,700 in a flat fee model and lenders would never wear such a loss.”
Mr White said the groups also claim that mortgage brokers are giving advice, yet that’s not the case.
“Under the regulations that govern mortgage brokers, they give credit assistance and are doing work on behalf of the lender, which is why the lender pays them a commission and it has no bearing on the interest rate the borrower pays.
“If you don’t use a broker you go to a bank which still has the administration costs for the loan, so it’s cheaper for the bank to originate a loan through a broker than at a branch.”
He said the suggestion to abolish trail commissions is an ignorant position to take by what should be a responsible group of consumer advocates.
“If they knew their subject matter, they would know that trail commission is paid to brokers to offset costs of providing ongoing customer service and to manage the borrower’s ongoing and variable lending needs as required under the national consumer credit protection regulations.
“There is absolutely no evidence to suggest trail incomes harm competition.”