Response To Mortgage Trailing Commission
The Federal government has announced that they will be placing the Banking Royal Commission’s recommendation on ‘trail’ commissions on the back burner for at least 3 years, this, after their initial declaration that new ‘trail’ commission would be banned a year after the report on Banking Royal Commission being released.
loansHub does not believe that the trail commission should be retained as it incentivises brokers to leave the mortgage with one lender rather than keep looking for a better deal for the customer on regular basis once the initial deal has settled.
On the matter of broker industry viability due to the borrower(s) having the capacity to get similar deals from the same lender, be it bank direct or via their broker, we need only look at the current lending market for an answer.
Lenders have implemented stricter credit policies around borrowers spending habits, leading to significant decline in home loan(s) being approved even though, historically, the same applicant(s) could comfortably borrow from the lender whilst maintaining similar expenditure and not have any problem meeting their mortgage commitments.
If brokers were taken out of the equation, options for borrower(s) when declined by lender, with whom they most probably banked all their life;
take time off work to visit other lenders and hope one of them gives them a loan or
they stay trapped in a high interest home loan with their current lender and if looking to purchase, place their home ownership aspirations in the too hard a basket and keep renting.
Whereas, the same borrower is able to get borrowing options from multiple lenders via one broker and if one lender declines, the broker is able to divert the loan application to the next lender on the shortlist for consideration and so forth. The credit crunch being applied by lenders, shows the value broker industry brings to Australians and over 59% of borrower(s) recognise this by using a broker.
Though loansHub does not support trail commission, we fully support a revised fixed percentage upfront commission that lenders have to pay the broker on settlement of a loan with them. The ratio being applied would have to reasonably remunerate the broker for the amount of work they have done to on-board this borrower(s) with any particular lender.