Backflip on mortgage broker changes

12/03/2019 - 14:29

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Mortgage brokers will continue receiving trail commissions beyond 2020 under a federal coalition government, with Treasurer Josh Frydenberg revealing a plan to scrap them has been dropped.

Backflip on mortgage broker changes
Josh Frydenberg changed his mind after speaking with mortgage brokers and small lenders. Photo: Facebook

Mortgage brokers will continue receiving trail commissions beyond 2020 under a federal coalition government, with Treasurer Josh Frydenberg revealing a plan to scrap them has been dropped.

"We're concerned about the impact on competition in the mortgage lending market," Mr Frydenberg told reporters on Tuesday.

Abolishing the trail commissions, which involve a fee being paid for a broker's services for the duration of a property loan, was among recommendations of the Financial Services Royal Commission.

The government had vowed to grandfather existing trail commissions and abolish new ones from July 2020.

However, it has changed its mind after speaking with mortgage brokers and small lenders.

"What we're very concerned about is ensuring that mortgage brokers continue to be a critical part of our residential mortgage market and they continue to play a critical role as small businesses in our community," Mr Frydenberg said.

The issue will instead be reviewed in three years' time by the competition watchdog and a financial council of the federal, state and territory governments.

The Labor Party has committed to abolishing trail commissions if it wins the next election and has vowed to cap mortgage broker fees at 1.1 per cent of a property loan.

The treasurer said that would cause competition issues.

"Not all lenders have the ability to, with a strong balance sheet, to provide higher up-front fees. So Labor's policy will end up being a free kick to the banks," Mr Frydenberg said. 

Royal commissioner Kenneth Hayne also recommended making borrowers, rather than lenders, pay upfront fees to mortgage brokers, but both sides of politics have baulked at the idea.

Labor confirmed on Tuesday that would be the only one of the royal commission's 76 recommendations it won't implement if it wins the next federal election.

Opposition leader Bill Shorten said mortgage brokers were not at the top of the hit list when the royal commission was called for.

"We see the bigger banks and the financial institutions as being the bigger priority," Mr Shorten told reporters in Canberra on Tuesday.

The opposition will also commit to pursuing broader changes to regulations in the financial services sector, believing the complex web of laws and structures needs to be simplified.

Labor has already proposed measures that go beyond the commission's findings, including a new compensation scheme and tax on the banks to pay for financial counsellors and domestic violence services.

The government has given qualified support to about a dozen recommendations made by Mr Hayne.

The Australian Finance Group said the federal government's announcement on trail commissions today confirmed the vital role mortgage brokers play in generating competition in the home loan market.

AFG chief executive David Bailey urged Labor to adopt the same policy as the government.

"We have seen an understanding from both the government and Labor that mortgage brokers provide vital competitive pressure in home lending, by writing close to 60 per cent of all home loans," Mr Bailey said.

"It's important that our industry not be a political football heading into an election so that the 26,000 small businesses, their families and, importantly, their customers have certainty about the future of the sector."

Mortgage Choice chief executive Susan Mitchell also welcomed the government’s decision today.

"It is clear that abolishing trail would have an adverse effect on the home lending market and would be detrimental to competition," Ms Mitchell said.

“Australia’s 17,000 mortgage brokers will applaud the government’s commonsense decision to keep trail commissions.

"ASIC’s 2017 Review of Mortgage Broking Remuneration Report did not identify trail commissions as directly leading to poor consumer outcomes, nor recommend the removal of trail commissions."

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