Fletcher Rowe | May 6 2019
The Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry concluded on February 1st and was released to the public eye on February 4th.
The report cast a scathing eye on the sector, noting systemic “unconscionable conduct” and an overriding culture of profit ahead of good customer outcomes. For the most part, the hearings highlighted in detail the failings of the banking and financial service channels.
Excluded from much of this scrutiny was the work carried out by mortgage brokers and any record of systemic misconduct within our industry. Instead, the hearings proved that the majority of banking misconduct was internal and a consequence of a sales culture within the walls of our banks. This is why it was an enormous surprise to hear Commissioner Hayne’s comments towards the work carried out by brokers and our remuneration structure.
The recommendations threaten to derail the Australian mortgage landscape, one that is amongst the most competitive in the world. The recommendations are, in our view, likely to reduce access to choice and stifle the ability to obtain credit. This will impact every single Australian who is seeking access to finance.
What we know about the mortgage broker industry is:
– Brokers settled 59% of all residential loans over the September quarter 2018 – its highest level in history, and through the crux of the Royal Commission’s Public Hearings;
– Brokers were responsible for just 0.5% of complaints made to AFCA in its first month of operation, out of a total of over 6,500 complaints made across the sector;
– The major banks’ Net Interest Margin – essentially the difference between their cost of funding and the interest charges passed onto customers – is at its lowest level of all time and has been declining consistently since the introduction of brokers to the market;
– The market share of major banks has continued to decline, to the point where non-majors now account for 41% of all loans settled – highlighting the added competition stimulated by the broker channel.
Any significant perturbation to our industry is therefore likely to lead to a reversal of the above. In essence, it will become extremely difficult for a new mortgage broker to enter the industry, and existing brokers will be forced out as costs increase and revenue declines. We will see our mortgage landscape revert back to an oligopoly, where the big-4 control the market and the consumer will be the hardest hit. This is a genuinely frightening prospect and in stark contrast to the intentions of the Royal Commission.
The team at IFA Mortgages are an industry leader, and we have fought very hard to champion for our channel to ensure its ongoing viability. This has included campaigning to incumbent and prospective federal ministers, Dave Sharma (Liberal Candidate for Wentworth) and Matt Thistlethwaite (Labor Member for Kingsford Smith, Shadow Assistant Minister for Treasury).
The Federal Election to be held 18th May 2019 shapes as a critical juncture for not just mortgage brokers, but all who hope to seek credit when applying for a home loan, car loan or investment loan. The major parties have contrasting policies and stances surrounding the viability of our channel, and we urge all to support our team in whatever way possible – whether that be by writing to your local MP, or simply spreading the word to your friends of the incredible work that we do.
You can also assist by signing the MFAA petition which will be used to mandate to the government the need for stability and highlight the public support that brokers receive.
We will continue our fight for our industry and we thank you for your support.
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