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Would-be home buyers won’t want to pay to get a loan
Of the 76 recommendations that Kenneth Hayne made in the royal commission’s final report, the suggestion that the consumer should pay a mortgage broker to get a loan has surprisingly caused the biggest uproar.
Naturally a lot of the noise is coming from the industry itself. This is understandable given that the 20,000 or so brokers who write nearly 60% of home loans stand to lose the most.
But how do consumers feel about it? Are you prepared to pay about $2310 for a broker to help you find a home loan?
That’s the number that CBA gave to the royal commission. Its final report also noted that “the upfront fee will necessarily be regressive and work to the disadvantage of borrowers of smaller amounts”.
Hayne’s recommendation is to first prohibit lenders from paying trail commissions to brokers for new loans, then prohibit lenders from paying other commissions to brokers.
I tend to agree on the trailing commissions – what other industry gets paid each year on the assumption that you will use their services again?
As for brokers charging an upfront fee, I’m in two minds. Here’s why:
Consumers (at least for now) won’t want to pay for a home loan. They don’t see it as receiving financial advice – the planning industry has enough trouble getting people to pay for investment advice let alone home loan advice. Then there’s the affordability issue: when you’re borrowing $500,000 for a home, the last thing you want is to pay $2000 to get the loan.
A recent Consumer Access to Mortgages Report from Momentum Intelligence confirms this. Well over half (58%) of respondents said they would not be willing to pay a broker a fee.
OK, you could add it onto the home loan but $2000 amortised over 25 years on a $500,000 loan equates to an extra $?? in interest.
And going to a broker who sells you the wrong loan can add tens of thousands of dollars too.
I never liked the fact that the cheapest loans are often not recommended by brokers, as they don’t get a commission.
Having said that, though, you don’t go to a broker to get the cheapest deal – this you can easily find yourself. You go to a broker to get your loan across the line. Now that’s when the value of a broker will be missed. Effie Zahos, Editor