Reducing commissions could increase interest rates, claim brokers

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As the Australian Securities & Investment Commission (ASIC) continues its review of broker commissions, broking network AFG have warned borrowers could be hit by higher interest rates as a result of any changes. 

According to AFG changes to broker commission could result in “a significant reduction in competition in the mortgage sector…every mortgage customer will pay for reduced competition throughout the life of their loan.” 
 
ASIC are concerned that mortgage broker commissions “are a form of conflicted remuneration” which could lead to worse results for borrowers.
 
The watchdog has been consulting brokers and lenders to see how commission works and whether alternative models – such as upfront ‘fee for service’ models – could work better for consumers.
 
However AFG claim undermining brokers could reverse a trend which has seen the average variable rate come down from 4% above the cash rate in 1994 to 1.75% in 2010.
 
Critics of commission have argued that while borrowers may not need to pay an upfront cost, commission is factored into the loan, thus making it more expensive and potentially preventing borrowers from accessing the most suitable loan for their situation.
 
AFG however argue that “not all potential borrowers recognise the discounts that brokers can secure for them”, noting that a “discount of 0.4% on a $450,000 25 year mortgage advertised at 4.8% would see the consumer pay off their loan 21 months early and save approximately $54,000 in interest.”
 
Whether brokers do make finance cheaper for borrowers will be examined in a wider look at lending data by ASIC, who will report their findings to the government in December of this year.
 
Was using a broker worth it? Our sister title MPA wants your opinion on commissions – and you could win a $250 Coles Group & Myer gift card by giving them your views: click here to do the survey.
 

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Comments
  • JacobLee says on 07/04/2016 11:33:23 AM

    I am sorry, but brokers don't reach places banks can't. Brokers are just another distribution channel for the banks, they are also better at marketing and acquiring a customer at a lower cost than the banks. So for an example: if no brokers currently exist in the market would that mean that 53% of the borrowers wouldn't have been able to reach a lender?

    Also, broker's prefer to write back to banks who pay them the most amount of commission. Just like Aussie, who is now owned mostly by CBA. Brokers will have a hard time moving forward. The digital age will and should transform this broker space and open doors to better options for the consumers. Just like ClickLoans, Loans.com.au and Loandolphin things will pop up to clear the mess Banks have created ie. brokers who take 60 basis points and a trail of about 15 basis points.

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