If you’re looking to sell your property in the near future, you might want to think about supporting mortgage brokers in their fight to remain a free service for consumers.
The Banking Royal Commission handed down 76 recommendations for change to the banking and finance sector but the biggest impact for consumers looking to get a home loan is the recommendation to change the way mortgage brokers are paid.
Currently consumers have multiple options to source their home loan from, whether it be direct to a bank, via an online home loan comparison site or by using the free services of a mortgage broker. If the recommendation by the Banking Royal Commission to change the way mortgage brokers are remunerated is implemented, those options will reduce to sourcing a home loan from one of the big four banks.
If consumers have reduced options on where they can get a home loan, their probability of getting their home loan approved reduces significantly. And that has a detrimental effect to the property market and sellers. Fewer buyers with approved finance to buy, means fewer buyers at open homes and fewer offers. Property prices will fall even further as the demand drops significantly.
34 lenders, down to 4
Currently, mortgage brokers act as an extension for lenders who don’t have a physical presences (branches), that consumers can easily access. On average, Mortgage Brokers have access to 34 different lenders for the borrower to choose from. Non-major banks like Suncorp, Newcastle Permanent, Pepper, BankWest, Citibank, Teachers Mutual Bank, ING, ME Bank to name a few, all rely on the mortgage broker network to provide consumers access to their home loan products.
All of the big four banks and non-major lenders (2nd tier lenders), pay commission to a mortgage broker if the consumer’s home loan settles. This is how mortgage brokers can provide a free service to consumers.
The Banking Royal Commission wants to stop payments from banks and non-major lenders to mortgage brokers. Instead, they want the consumer to pay a multi-thousand dollar fee for the home loan, regardless of how they acquire the home loan either directly from the bank or via a mortgage broker.
But, do consumers want or can afford to pay another fee when securing their home loan? The answer is no, and fair enough too. Cost of living is increasing, and why would someone want to pay a huge fee for a service that they have always received for free?
So, if consumers won’t pay to use a mortgage broker, how will a borrower get access to the non-major lenders?
The answer is, they won’t.
Fewer home loan options equal fewer buyers
The credit crunch has already made it more and more difficult for buyers to secure a home loan over the last 18 months, when restrictions on investments, interest-only loans and borrowing capacity reductions were implemented.
We’ve all heard of the property market bubble but the reality is, no finance means no buyers. The supply of good properties is definitely still there, but buyer demand has dropped because of access to home loans.
And if the 17,000 mortgage brokers across Australia aren’t able to generate revenue to stay in business, the consumer access to non-major banks also disappears.
Removal of mortgage brokers means bigger profits for the big four banks
The only winners from this scenario is the big four banks. And sure enough, their share prices skyrocketed the day after the Royal Commission’s report was released.
Whilst the big four banks hold the majority of residential home loans across Australia, their market share is diminishing as non-major lenders become the only option for some home buyers.
The big four banks home loan products aren’t suitable for everyone. If you’ve ever accidentally missed a payment, gone on maternity leave, run your own business or wanted to borrow 95% of the property value or anything else a little outside the standard home loan box, you’ll appreciate having access to non-major lenders.
Non-major lenders provide a range of niche products, which can provide options for borrowers who aren’t referred to as ‘vanilla’. Consumers need choice and shouldn’t have that taken away from them.
Supporting mortgage brokers means supporting buyers, sellers, real estate agents and consumer choice
You may not choose to use a mortgage broker now or in the future, but currently, you have that choice. If these recommendations are implemented, mortgage brokers will cease to exist, and your choice is gone.
Currently, 59.1% of home loan borrowers in Australia choose to use a Mortgage Broker. If the Banking Royal Commission recommendations to Mortgage Broker remuneration are implemented, your choice will be reduced to the banks with the biggest branch networks.