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Experts in the property industry have handed down their judgement on the banking royal commission’s final report, voicing their concerns in particular over how the changes for mortgage brokers will impact property investors.
The royal commission’s final report, released on Monday, proposes major changes to how brokers are remunerated.
The federal government said it will adopt most of the report's recommendations, meaning the way mortgage brokers operate and are paid is set for change.
Under the current government, mortgage brokers will have a best interests duty placed on them, as well as a ban on trail commissions and volume-based bonuses on new loans. The government will also look to review a borrower-pays remuneration structure for mortgage brokers in three years. Currently, mortgage brokers provide a free service for Australian borrowers.
Industry hits out
Peter Koulizos, chairman of the Property Investment Professionals of Australia, said that broad-brush suggestions about widespread greed in financial services “does a disservice to the majority of honest employees working in the industry”.
“Mortgage brokers, for example, create much-needed competition and deserve to be paid for their professional service, so we’re pleased that the federal government has questioned the recommendation that commissions be paid by consumers rather than banks – who are the ones who can clearly afford it the most,” Mr Koulizos said.
Ken Morrison, CEO of the Property Council of Australia, agreed with Mr Koulizos’ sentiments, saying making changes to the way mortgage brokers are paid without care would make it “harder for qualified borrowers to find and secure competitive finance for property purchases”.
“Mortgage brokers account for more than half of all home loans settled, and are a vitally important source of advice and access to competitive finance for Australian property buyers,” Mr Morrison said.
“The proposed alignment of the regulatory framework for mortgage brokers with that of financial advisers may also impact on the future structure of the industry and access to finance.
“The property industry will need to be consulted on the transitional arrangements, particularly given the current uncertain state of the residential property cycle.”
Property commentator and CEO of Suburbanite Anna Porter added altering mortgage broker remuneration to the proposed user pays system could cause an exodus of brokers, which does include quality brokers.
“This will result in the wealthy staying wealthy through good advisers being on their team, but everyone else will lack quality advice for buying property, getting loans structured and setting up their retirement and their super,” Ms Porter said.
Following the release of the report, Mr Koulizos said that he hoped the current credit tightening that has been prevalent for the last three years would be relaxed, with lenders increasing the level of scrutiny placed on borrowers in recent years.
“Solid borrowers, who should have no problem securing finance under normal credit conditions, are getting knocked back for silly reasons such as spending $50 on Uber Eats on a Friday night,” he said.
“With property prices continuing to fall in our two biggest capital cities, inflation stubbornly low, and wages flat-lining, lenders need to release their strangle-hold on credit so our economy can get moving again.”
LISTEN: Alex Whitlock, director of Momentum Media, shares his insight into what the Royal Commission means for Australian borrowers and competition.
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.