Warnings are mounting about controversial proposals to change the way mortgage brokers are paid, with experts fearing a detrimental impact on property investors.
Noting that the final report for the banking royal commission recommended that lenders should be prohibited from paying commissions to mortgage brokers, and that borrowers should instead pay brokers for their services, a property investor said this would impact investors.
Speaking on the Smart Property Investment Show, the founder and director of Rethink Investing, Scott O'Neill, said that a borrower-pays model would be “terrible” if implemented.
“I would personally go to a [mortgage] broker because I don’t have the time to knock on four different banks’ doors. It’s not worth it, but I’m not the masses,” Mr O’Neill said.
The buyer’s agent noted some property investors have a family bank manager that they deal with, which may exclude them from accessing arrays of other viable, or potentially superior, mortgage products available on the Australian market.
“Particularly for people with larger portfolios, like myself, I’ve got things like unit blocks, normal houses, commercial property…. For me to go into a branch to go through all that with some person who’s never met me would be an absolute nightmare,” he said.
Property investors potentially will not get the best deal if they go directly to a bank, Mr O’Neill asserted, because they would be only dealing with mortgage products offered by that lender.
“You need someone working for you to shop around for the best deal,” he said.
“A bank, if you go to them direct, they’re going to show you their set of rules, which is not going to be the best deal because there's dozens of other options out there in the market.”
Mr O’Neill added that mortgage brokers are often able to access a large range of mortgage loan products and lenders.
The Sydney-based property investor added that some of Commissioner Hayne’s recommendations to change mortgage broker remuneration would give “more competitive advantage back to the banks, which is not what we want because that could lead to higher interest rates long term.”
Further, brokers can assess the ability of property investors to secure financing based on their unique circumstances and situations, Mr O'Neill said.
“A good mortgage broker has connections within the banks. They can speak to people at the right levels and results happen quicker [and] get me better interest rates,” he said.
“And if we need to move down the track… the mortgage broker will understand my situation and it just fast-tracks everything.”
He suggested this personalisation of service is also invaluable in getting loans approved for investors who may have had their loan applications rejected without third-party assistance.
“I'd probably get knocked back and then I'd have to go and do it all over again at [different banks] and then I would be wasting my whole day with no result,” Mr O’Neill said.
The property buyer concluded by saying that while there was uncertainty as to how broker remuneration would look in the future, given the differing stances taken by the Coalition government and Labor party, he agreed that the broker remuneration structure is likely to change, regardless of the outcome of the upcoming federal election.
Following the release of the report, the Coalition government’s official response initially suggested that it would seek to ban trail commissions for new loans from 1 July 2020.
However, Treasurer Josh Frydenberg announced earlier this month that the government would instead postpone any decision on removing trail until after a review of mortgage broker remuneration has been undertaken in three years’ time.
Meanwhile, the Labor Party’s response called for the removal of trail for new mortgages from 1 July 2020 and for a standardised up-front commission as a proportion of the loan amount.
It suggested that commissions should be capped at 1.1 per cent “so that banks can’t offer brokers incentives to choose their products”.