Bank wanted mortgage broking fees transferred to customers
A big four bank almost overhauled its broker remuneration model so that the cost of mortgage broking services would be transferred to customers.
The Royal Commission (RC) revealed that back in 2017 the Commonwealth Bank planned to replace commissions paid to mortgage brokers with a flat fee. Instead of the bank paying brokers a commission. Customers would pay a flat fee to brokers.
CBA’s CEO Matt Comyn told the RC that CBA believed the most attractive model was one where “customers would pay a broker”.
The move would have saved CBA $197 million over five years if everyone in the market moved with them.
They wanted regulator intervention to drive an industry wide move to this model. CBA feared they’d be left hung out to dry by the other big three banks if they went alone.
“We came to a view that nobody will follow and we will suffer material degradation in volume,” Comyn said.
Not only would this model be a major disadvantage to consumers going forward. It reduce a new broker’s revenue on an average loan to about a third of what it currently is.
Basically, the only real winner would have been the big banks.
Not the customers. Not the mortgage brokers.
The banks.
Some interesting stats
A Deloitte Access Economics report may explain why CBA was looking to limit the growth in the mortgage broking market:
– Over the past three decades brokers have contributed to the fall in net interest margin for banks of over 3% points. This saves you $300,000 on a $500,000 30-year home loan (based on an interest rate fall from 7% to 4% pa).
– 27.9% of residential loans are arranged through lenders other than the big four banks and their affiliates. Providing competition and more choice for consumers.
– On average, mortgage brokers have 34 lenders on their panel and use 10. It’s this additional choice that adds competition in the market. The only winners from less competition are the big banks.
– 56% of residential loans were settled by mortgage brokers in the September quarter in 2017. This is up from 44% since 2012.
– 70% of a broker’s business comes directly or indirectly from existing customers, demonstrating high levels of customer satisfaction.
– 9 out of 10 customers are satisfied with the services provided by mortgage brokers.
It’s still a live issue
Basically, the reason CBA didn’t pull the trigger on the move was because it was worried that if it did, the other lenders wouldn’t join them. Instead, they’d swoop in and steal their business.
However, if the regulator enforced a flat fee model, then all the lenders would have to get onboard.
How can you help?
The best way is to contact your local MP to let them know you’re happy with the mortgage broking service we’re currently providing.
By letting your local Federal Member of Parliament know this you can help prevent the cost of our future services being transferred from the bank over to you – and you’ll also be showing your support for us.
If you’d like any more information on this issue don’t hesitate to get in touch. We’d love to speak to you more about it.