What’s the silver lining for borrowers in Royal Commission’s final report?

This is a welcome commitment for investors, who struggled with a tighter credit environment in 2018, and feared the Royal Commission may compound this issue.  

In its official response, the government also said it recognises “the importance of competition in the home lending sector.” 

The impact on property investors

The recommendations made by Mr Hayne that impact property investors focus mainly around access to mortgage brokers and lenders, as well as recovering previously-thought lost funds.

For one, the way mortgage brokers operate and are paid is set for change. Mortgage brokers will have a best interests duty placed on them, as well as a ban on trail commissions and volume-based bonuses on new loans.

The government will also look to review a borrower-pays remuneration structure for mortgage brokers in three years. Currently, mortgage brokers provide a free service for Australian borrowers.

However, the government acknowledges tinkering with broker remuneration could have a detrimental impact on competition. 

"We don’t want the work that is now currently with 25,000 small businesses and people working within the mortgage broking industry to just simply go with the big banks. We don’t want to give the banks a free kick. And that’s why previous findings of the Productivity Commission and of other reports... has found this shouldn’t be changed," said Mr Frydenberg on Tuesday morning.  

Further, recent research shows higher satisfaction levels with Australians who use a mortgage broker versus those who go direct to a lender. 

The report also mentioned the establishment of “a compensation scheme of last resort” (CSLR), a panel that can recover lost funds when personal and/or general advice is given to a consumer or small business that results in uncompensated losses.

“For there to be confidence in the financial system’s dispute resolution framework, it is important that where consumers and small businesses have suffered detriment due to failures by financial firms to meet their obligations, compensation that is awarded is actually paid,” a response from the government read.

“The CSLR will operate as a last resort mechanism to pay out compensation owed to consumers and small businesses that receive a court or tribunal decision in their favour or a determination from AFCA, but are unable to get the compensation owed by the financial firm — for example, because the firm has become insolvent.”

“The interests of consumers must now come first. From today the sector must change, and change forever,” Mr Frydenberg said.