By Damian Collins – REIWA President https://reiwa.com.au/
Earlier this month the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry handed down its long-awaited findings. REIWA was pleased to see there was no directive included in the findings to introduce any additional criteria that may affect people’s ability to borrow for housing. While the tighter lending standards currently in place have had the desired effect of cooling the red-hot Sydney and Melbourne markets, this blanket-style approach has had plenty of repercussions for our local market, which is still struggling to find its feet. It is our hope this stringent lending criteria imposed by lenders and the regulator can now be relaxed.
One of the other big talking points to come out of the Royal Commission surrounds the recommendation for mortgage broker commissions to be replaced by fees paid by the applicant. While many real estate agencies have in-house brokers or alliances, our main concern as an industry is to ensure any changes to the fee structure do not limit competition and do not impose additional costs on borrowers.
The broking channel has opened up the opportunity for many securitised lenders to get loans to market and compete with the major banks. This competition has reduced the banks’ net interest margins from around 3.5% to 2.2% in the last 20 years, according to the Reserve Bank of Australia. On a $1.7 trillion loan balance, ABS data shows this is saving Australian borrowers $22 billion in interest per year.
Flipping the script so the borrower pays the brokers’ fee may have merit in theory, but with it comes the potential to deter people from using brokers all together. This will reduce competition and the end result may be that all borrowers end up paying higher interest rates.
The Royal Commission has suggested as an option that the Government also impose a fee if a consumer borrows directly from a lender, and that the fees be capitalised into the loan. This will ultimately increase the cost in buying a house, doing nothing to help the ever-present issue of housing affordability. Not to mention this amount will then be compounded by interest over the life of the loan.
Handing power over to the big banks will undoubtedly see interest rates increase. Giving the consumer the choice and power to easily navigate the multitude of lending options through the use of a broker has been proven to increase competition and lead to lower interest rates for borrowers.
Whilst mistakes have been made by the mortgage broking industry, we must ensure the government does not apply a sledgehammer approach to fixing the problem without adequate foresight into the repercussions for the market.
Any policy that diminishes competition in lending or reduces housing affordability will cost us all dearly, not just mortgage brokers.