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Finance

How the royal commission endorsed mortgage broking

Australians were close to losing a valuable service they had grown to love and rely on during the hunt for misconduct in the financial services industry.

As many will be aware, a few years ago there was a royal commission into the financial services sector. Its aim was to uncover misconduct in the industry and in that regard, it was very successful. There were plenty of shocking findings, mostly from the major financial institutions. 

What got dragged into the inquiry was mortgage broking. Because lenders pay mortgage brokers a commission, there were questions to be asked about whether that remuneration was conflicted. 

Now, common sense would suggest that if a lender is paying a broker a commission, then surely the broker is acting in the interest of that lender, not the borrower. But that is actually an erroneous conclusion. 

In the heat of the royal commission there was a lot of discussion about whether commission payments were right or wrong. Nobody actually asked consumers for their thoughts, which I believe was a major oversight of the inquiry. 

As the founder of The Adviser, Australia’s leading publication for mortgage and finance brokers, I saw an obligation to give consumers a voice. It was important to see how they felt about commissions and what their thoughts were on the value that brokers provide. 

We surveyed over 5,000 borrowers to understand their experience. The findings revealed that over 89 per cent of borrowers were happy with the outcome their broker provided, far higher than the satisfaction of those going direct to a lender. 

Interesting, more than 70 per cent of borrowers had no issue whatsoever with a commission being paid to the broker by a lender in order for them to receive the free service.  

This is something that is fundamental to the value of the mortgage broking offering in Australia – it is a free service to the borrower. The borrower doesn’t pay a cent. The product is the same whether you walk into a branch or use a broker. This is something that borrowers really value. 

We also asked the 5,000 borrowers if they would continue using a broker if they had to pay a fee. The reason for this question was based on the royal commission, which at one stage was very close to recommending commission payments be scrapped in favour of a fee-for-service model. 

Despite the fact that borrowers enjoy the service provided by brokers, the research found they were unwilling to pay a fee. 

Life is expensive. You want a home loan with a low rate. You don’t want to be paying fees to mortgage brokers. 

By maintaining the existing commission model, the royal commission effectively endorsed the mortgage broking service and acknowledged the benefit and satisfaction it gives to Australian borrowers. 

Without the mortgage broking channel there would undoubtedly be less competition in the home loan market. That would mean borrowers like me would be in the hands of the banks, who will always put profits before anything else, and would ultimately lead to more money coming out of my pocket. 

Thankfully, I and millions of other Australians can continue using the free service of mortgage brokers to facilitate our home lending needs.

Author

Alex Whitlock, founder, The Adviser

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