The Mortgage Broker “Money For Nothing” Myth

Posted by | February 10, 2019 | Community, News

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At Jobs On The Coast we are keen to help our customers find ways to maximise their quality of life and disposable income, which can be achieved through increasing your income (e.g. finding a higher paying job) or reducing your expenses (e.g. reducing the money spent and time absorbed on the daily commute to Sydney).

As a mortgage payment is often our largest financial commitment, many of us also recognise the importance of making sure we regularly check we are getting the best deal from our lender.  A great way to help you do this, is by contacting a Mortgage Broker.

If you’ve ever used a Mortgage Broker to “keep your bank honest”, find the best deal, or navigate the complicated rules to get your loan approved, you may wish to join the campaign to save their business model.

The proposed changes from the Banking Royal Commission mean that you will not have access to a mortgage broker’s advice in the future, without having to pay fees for service.

As the value of a Mortgage Broker’s business is based on their trail commission revenue, the proposed changes will force first-class brokers out of the business, having the opposite effect to what most of us want to see.  Without Mortgage Brokers, the banks will have reduced competition, allowing them to Increase their fees and interest rate margins.  Ultimately resulting in us, the customers paying more!

According to the Credit Industry Ombudsman you are 760% more likely to have a complaint about your bank than about your Australian Credit Licensed Mortgage Broker.

Mortgage Brokers trailing commissions have been portrayed as “ money for nothing” and but here are some important facts:

  1. Trailing commission provides a menu of services that the banks would otherwise struggle to provide – such as rate reviews to ensure you are still getting a competitive deal on your loan, help with ongoing matters such as transactional assistance, removal of guarantees, swapping properties over whilst retaining the same loan when buying and selling, and such forth. These services are hard to leverage from the bank directly and the services are not able to be provided free of charge by brokers as for good brokers it accounts for 25% of their working hours. Trailing commissions pays for these services. Without trailing commission these services will be either be charged for by brokers or we can approach our bank and see how we go with getting through to the right department in the bank to get help with matter at hand.
  2. When a loan goes into arrears, trailing commissions cease until the loan is back in good conduct. Subsequently, the broker makes contact with the borrower and assists with getting the loan back into good conduct. This is an important trigger in our economy – banks are risk-rated according to a number of parameters but most importantly on loan delinquencies. The banks risk rating affects how much it costs them to raise capital to lend to us. The more loan delinquencies, the higher the cost. In summary it’s realistic to expect that more loans will stay in arrears for longer when trailing commissions are removed- and we could all end up paying a higher rate solely due to removal of trailing commissions.

The following graph shows the fall in banks net interest margins since 1989 and a significant contributor to this has been the increased competition brought about by mortgage broking:

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If you want to show your support for the future if Mortgage Brokers, follow this link and it takes less than a minute to sign the petition and send an email to your local MP …

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