An Illawarra mortgage broker believes the industry crackdown would give more power to the big banks and less choice to home buyers.
Justin Bailey, associate director of Illawarra Home Loans has been working as a mortgage broker in the region for several years.
Mr Bailey was surprised by “the action they’re going to take against brokers, (which) realistically throws the power back into the bigger banks”.
Mortgage brokers have hit out at the Banking Royal Commission’s recommendation to scrap their commissions in favour of upfront fees, saying it will play into the hands of the big banks by making customers less likely to compare loans and find the best interest rate.
Both major parties have committed to removing trailing commissions, which pay brokers a small percentage of the value of a loan every month for the life of a loan, but only Labor has said it will remove upfront commissions.
“Why should a broker, whose work is complete when the loan is arranged, continue to benefit from the loan for years to come?” commissioner Kenneth Hayne said in his final report.
Mr Hayne has recommended the abolition of trail commissions paid to brokers in the next year to 18 months, followed by the complete abolition of all commissions paid by lenders to brokers in the following year to 18 months.
“By shutting down brokers or making it harder for them, or making clients pay upfront fees… That’s basically putting more power into the banks,” Mr Bailey said.
Mr Bailey said 55 per cent of loans nationally were written through brokers.
“You’re going to take away that competition,” he said.
“There’s a lot of little banks that don’t have branches, so they rely on the broker channel to support them.
“And that’s how it creates competition. Even though the bulk of the loans still goes through the big banks, it creates competition within the broker channel, which is great for the customers.”
Mr Bailey said the proposed changes would make it more difficult for prospective home buyers in the Illawarra to get into the market.
He said this was because brokers are generally more skilled in different products through different banks.
“For example, some banks are more lenient with first home buyers, and it’ll make it harder for them when they have to go shopping around themselves.
“So you’d have a customer, it might be a young customer and a first home buyer, going down Crown Street trying to visit all the banks.
“And it’s just going to be hard for them; by the time they go through the second one they’re just going to accept what’s there.
“And that’s what the big banks do as it is; they make it difficult so you just go with whoever you can get it from.
“(Whereas) the brokers don’t care per se about what bank, they just care about what the best rate is for the customer, and who can do it efficiently for them.”
Mr Bailey said the changes would likely mean the broker industry “will get smaller, but I don’t believe it’s going to destroy it… Because they know it’s going to take away that competition”.