Money Magazine Australia

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Would-be home buyers won’t want to pay to get a loan

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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

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