It’s no doubt that the banking royal commission’s recent recommendations have led to some serious media buzz, with strong backlash from the mortgage broker sector about the ‘potential demise’ of the industry.
But what do the recommendations actually mean for the average buyer?
Firstly, it won’t be known what the full implications of the report are until the next few months, when it’s clear whether or not the proposed model will be adopted.
Certainly, it appears there will no further tightening of lending for buyers. But what the RC has recommended (and Labour seems to support) is ‘better regulation’ of the banking sector in the best interests of consumers – and no one could disagree with that.
This would come with the banning of current commissions to mortgage brokers from banks whose loans they sell – as well as through the introduction of lending fees (‘Fee for Service’) to be paid by the consumer to the broker.
This proposed new ‘user pays’ model would require borrowers to pay brokers directly for their service, which could mean taking out a bigger loan to cover broker fees that banks would receive interest on.
It’s a model that’s in the collective interests of big banks and which could end the broker industry, according to Finance Specialist Craig Corbett among numerous other brokers. This is largely due to the belief that forced service fees will deter consumers from using brokers, both in the loan settlement phase as well as every time a consumer wishes to refinance, vary or swap their loan with another lender.
So what would a world without a broker industry look like?
The proposed model is said to put competition at risk, with big banks getting a ‘free kick’ from consumers who can’t afford to seek loan advice from a broker.
In the words of Craig Corbett, the current model allows brokers to run a viable business.
“Imagine asking a first home buyer to pay a $5000 loan arrangement fee out of savings they spent years putting together. Each time you want to refinance your loan, or vary it with the same lender, you are charged this fee. Less chance of changing loans, thereby reducing competition.
“We work with clients every day on pricing structures and loan switches. None of this will be paid for, and we won’t be able to do it with lenders gaining more pricing power,” says Craig.
The government is currently reviewing the decision, which is sure to have wide impact on first and second-home buyers as well as investors seeking to get a good deal on a home loan.