Property investors could wear cost of changes to mortgage broker regulation
Experts fear that property investors will absorb the cost of changes to how mortgage brokers are paid and regulated, as both sides of government prepare to take on recommendations from the royal commission.
The Property Couch co-host Ben Kingsley said that if Hayne’s recommendation for borrowers to pay brokers a flat fee for arranging loans kicks in, there would be a significant lack of competition for the banks because consumers would be driven away from paying more.
“It’s as clear as day in terms of the cost effectiveness [that] having competition in a marketplace meant that borrowers pay less. That’s a great consumer outcome,” said Mr Kingsley on the Smart Property Investment Show.
Further, Mr Kingsley said the changes will see property investors left in the lurch without the expertise of brokers who specialise in investments.
“The average mortgage broker who may be processing a first-home owner compared to someone who’s processing an investor that might have two properties, three properties or really sophisticated – it is chalk-and-cheese in terms of the expertise. Now, you do not find that expertise if you walk into a bank,” said Mr Kingsley.
“If I’m a new arrival to the country, there might be 20 banks that don’t want to know me, but I’ve come with a computer science degree and five years working in Silicon Valley.
“But there’s a small bank or an independent bank or a credit union who has a credit niche and they give them the loan. But that wouldn’t have been found if there wasn’t that broker there helping them.”
Momentum Media director, Alex Whitlock, believes investors will be at the mercy of bank staff, who may not have the same level of knowledge and experience in the investment space.
“As an investor, if you go to a bank branch, you get whatever chump is stood there will deal with you. And you’ve got the luck of the draw,” said Mr Whitlock.
“Now, investors, when you use a broker, you’ve got the chance to go and find ... and there are lots of brokers that specialise in investment. It is such a nightmare, and we will go back to this again and again – you walk in the branch, and you’re at the mercy of whoever’s there.
“Now, the question I would ask is, whose best interests is getting rid of and diminishing a channel that offers choice when you have a very fundamental proprietary channel that you can control things?”
Industry reacts
The reaction to the broker remuneration by property investment experts have been unanimous: the change to a ‘borrower pays’ model would cause property investors to suffer.
Ken Morrison, CEO of the Property Council of Australia, previously said that changing how mortgage brokers are paid would make it more difficult for borrowers to secure competitive finance.
“Mortgage brokers account for more than half of all home loans settled, and are a vitally important source of advice and access to competitive finance for Australian property buyers,” Mr Morrison said.
“The proposed alignment of the regulatory framework for mortgage brokers with that of financial advisers may also impact on the future structure of the industry and access to finance.
“The property industry will need to be consulted on the transitional arrangements, particularly given the current uncertain state of the residential property cycle.”
Property commentator and CEO of Suburbanite Anna Porter previously said that by changing the mortgage broker remuneration model, brokers would leave the profession and make it more difficult for investors to find professionals to assist them.
“This will result in the wealthy staying wealthy through good advisers being on their team, but everyone else will lack quality advice for buying property, getting loans structured and setting up their retirement and their super,” she said.
Peter Koulizos, chairman of the Property Investment Professionals of Australia was pleased that the government did not support the ‘borrower pays’ pay model, saying that it “does a disservice to the majority of honest employees working in the industry”.
“Mortgage brokers, for example, create much-needed competition and deserve to be paid for their professional service, so we’re pleased that the federal government has questioned the recommendation that commissions be paid by consumers rather than banks – who are the ones who can clearly afford it the most,” Mr Koulizos said.
You can hear the full podcast here.