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Following news last month that CBA had changed its broker commission structure, a consumer survey commissioned by mortgage contest website flongle.com.au has revealed that despite significant variances in financial incentives being paid to brokers to sell Australians into home loan products, 86 per cent of Australians have no idea how much money brokers stand to make from advising them on their home loan.
Meanwhile, 65 percent said that it wasn’t important because “it didn’t affect them”.
The survey also revealed that 24 percent of mortgage holders who used a broker were not aware that their broker earned commission at all, while only 23 percent of Australians were aware that branch and mobile staff employed directly by lenders could also receive commissions, bonuses and incentives for selling customers in to certain home loan products.
Despite this, the survey also revealed that 86 percent of home loan holders think their broker was “on their side” and offered them unbiased advice.
According to flongle.com.au founder Michael Lee, the results highlight the disconnect between how the mortgage industry works and how Australians think it works.
”More than $2 billion in commission was paid to brokers in Australia last year, but clever marketing from the big brokers and industry associations tells borrowers that this commission doesn’t affect them, as it’s paid by the lender,” Mr Lee said.
“It’s not just the $3,000 to $4,000 brokers get when your loan settles, either,” he said.
“What most borrowers don't realise is that every time you make a loan repayment, an additional payment is made to your broker, for the life of your loan.
“Most importantly, the commissions paid by different lenders can vary greatly, and certain home loan products and features will generate more commission for brokers than others.”
Research has also shown that while many brokers advertise up to 40 lenders, most will recommend loans from only their favourite three or four, Mr Lee said.
Deloitte partner financial services James Hickey has researched how much remuneration influences decision-making among mortgage brokers, and agrees that brokers often only use a handful of lenders.
“From my work across the broker market it is interesting how brokers will have their three to four lenders because they know that product, they know the processes, they have a relationship with the BDMs and can get quick turnaround times for the borrower around approvals,” Mr Hickey told Mortgage Business.
“In many cases that is not the lender that is offering the most commission,” he said. “It is not the lender who is offering the biggest volume bonus.”
In a highly competitive market where products, prices and commissions are becoming increasingly similar, the one point of difference for brokers is quality support and fast approvals for their clients, Mr Hickey said.
“I’m finding that most of the rhetoric coming from brokers in this environment with volumes being so high is actually the responsiveness of the lender, the quality of service support the lender gives to the broker and end customer to get certainty around the process,” he said.
“Provided commissions are comparable, then all the other factors are far more important.”