Shares in Perth-based Australian Finance Group and ASX-listed Mortgage Choice plunged today on concerns the mortgage broking sector will be one of the biggest losers from the banking royal commission, which recommended the banning of commissions paid by lenders to brokers.
In his final report, which was released after yesterday’s close of trade, commissioner Kenneth Hayne recommended a ban on trailing commissions for loans issued from July 1 2020.
The report went on to state that upfront fees for mortgage brokers should then be phased out.
This would force brokers to charge their customers directly, which would be expected to substantially dent their business volumes and profitability.
However, the total ban on commissions is the one recommendation the government has balked at endorsing.
Prime Minister Scott Morrison said today his government would not ban trailing commissions until at least 2022, and was not committed to implementing a ban on all fees.
“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,” he said.
"The abolition of trail commissions and the proposed shift in future to a ‘borrower pays’ model for broker commissions will need to be very carefully managed so that the objective of better outcomes for consumers is achieved without making it harder for qualified borrowers to find and secure competitive finance for property purchases."
However, shadow treasurer Chris Bowen said a Labor government would support all of Mr Hayne’s recommendations in full and may implement additional measures.
"Banks and financial institutions should work on an ethical basis, they should be above all, ethical," he said.
Labor is widely tipped to win the next federal election, which must be held before May 19, holding a 6 per cent lead over the coalition on a two-party-preferred basis, according to the latest Newspoll.
In a statement, AFG said it welcomed the government’s announcement to conduct a three-year review before removing trailing commissions and introducing mandatory upfront payment of mortgage broking fees.
AFG chief executive David Bailey said the company and broader mortgage broking industry would work closely with policymakers in the coming months.
“With market share for the mortgage broking sector at an all-time high, customers clearly trust mortgage brokers,” he said.
“This fact should be front and centre in the minds of policymakers.”
Shares in AFG fell 29.1 per cent to close at 90 cents each.
The share price of another ASX-listed mortgage broker, Mortgage Choice, also crashed today, finishing the day 25.2 per cent lower at 78 cents.
