Brokers add competition for consumer benefits

Speaking on an episode of The Smart Property Investment Show, two industry representatives discussed the potential damages caused by Commissioner Kenneth Hayne’s final report to key sectors and consumers in the mortgage loan industry.

Ben Kingsley, broker and director at Empower Wealth and chair of the board of directors at the Property Investors Council of Australia (PICA), and Alex Whitlock, director of mortgages at Momentum Media, warned of the negative impacts that Commissioner Hayne’s final report could have.

Mr Whitlock said: “It was also an opportunistic moment, really, to target a channel that is potentially a threat to the major banks in terms of distribution.”

The duo discussed assertions made by the royal commission and major banks that paying commissions to brokers via lenders creates “poor borrower outcomes”.

Both argued that brokers provide competition in the home loan market, meaning borrowers ultimately pay less, which is “a great consumer outcome.”

Mr Whitlock then touched on Momentum Intelligence’s recent Consumer Access to Mortgages Report, which asked consumers what their satisfaction levels were with the distribution channel they used for their mortgage and their thoughts on broker remuneration, among other topics.

“If you’ve got 96 per cent of people who have gone through [the broker] channel and are phenomenally happy, it tells you a story about how dissatisfied people are with banks and how valuable having a broker there to open up,” Mr Whitlock said.

He continued: “It’s not just about price, it’s about product innovation, it’s about flexibility, it’s about tailoring things to a particular borrower’s needs for a specific property at a particular time.”

The brokering and lending sectors have been campaigning and lobbying for broker remuneration to remain as it is – with the political parties seemingly sympathetic to the cause.

Both the Labor Party and Coalition government have now released their responses to the royal commission, backing away from accepting the consumer-pays model, as suggested.

Instead, both parties have said that trail would be banned for new loans from 1 July 2020, but would undertake a review in three years’ time to consider the impacts of the change and consider the implications of moving to a consumer-pays model.

Speaking earlier this month, Prime Minister Scott Morrison said that he doesn’t want the broking sector to “wither on the vine and be strangled by regulation that would throw them out of business… [and] deny choice and competition in the banking system”.

“If there is one thing that we have learned through this process, it is that we need more competition. We need more options. We need more choices. Not fewer. And that is what the Treasurer and I are concerned about in terms of how we would go forward on that one recommendation [on broker remuneration],” the Prime Minister said.

The podcast guests noted that the campaign messages on the consumer-pays model “has washed through and now that the real understanding of the potential damage to Australian borrowers through, rather than improving competition, actually narrowing competition... [is] starting to resonate,” according to Mr Whitlock.

As a result of increased competition, the big four lenders are less able to monopolise the mortgage market, as Mr Kingsley reiterated: “Competition in a marketplace meant that borrowers pay less. That’s a great consumer outcome.”   

Both the SPI podcast guests agreed that it is also cheaper for lenders to distribute mortgage products through broker channels, rather than through branch channels or mobile channels – as banks do not have to pay broker wages, holiday or sick leave, superannuation or leases on buildings that brokers work out of.

Moreover, mortgage brokers do not get paid a salary and operate on behalf of a borrower through the “most onerous process” to ensure “great consumer outcomes” are achieved.

Mr Whitlock said: “These guys (brokers) go with you every step of the way – they prepare the application, they will present a number of options to you, they’ll look at your specific needs, which are much more complicated now for most borrowers than they were 20 or 30 years ago – and they only get paid when that loan is settled.

“I go and see a broker who is agnostic in terms of lender because their outcomes are aligned with the borrower,” he continued.

“So, they will sit there and they know policy from 20 lenders at that particular time – and if ANZ has just moved out of the market, but CBA has come in, they’ll go: ‘Look, we’ll go with CBA because they’re lending in this particular asset class’.”

Touching on a report regarding an upsurge in mortgage broker demand, from 10 per cent market share in 1986 to 59 per cent market share today, the commentators agreed that high-level expertise in the broker industry has provided customers with a service they value and benefit from – for decades running.

“We’re not saying everyone should use a broker,” Mr Whitlock continued.  

“We’re saying you need choice, not just because it’s a personal thing and I should choose where I go, there is also, as we’ve sort of addressed, there is an underlying issue around competition.”  

Mr Kingsley concluded: “I’m watching my [broker] market share go from being the controlling distributor of mortgages, which ultimately then leads to the credit card, the offset, or the transactional banking, the insurance and all those type of things, and you are taking that away from me? I am going to fight.”

Listen to the full episode of The Smart Property Investment Show here.