In response to the Australian Securities and Investments Commission’s (ASIC) review into mortgage brokers’ commissions, a forum of brokers, bankers, and other lenders are vowing to reform some of the practices and payments that have long been criticised by consumer groups.
Brokers will no longer have the incentive to sell customers larger-than-necessary home loans, and banks will stop paying bonuses to brokers who write large numbers of mortgages.
Tougher rules on soft-dollar spending – such as banks paying for brokers to attend hospitality events – will also be introduced.
The changes were proposed to Kelly O’Dwyer, Minister for Revenue and Financial Services, and are an attempt to improve standards in the mortgage broking sector.
Under the plan, banks will continue to pay brokers a commission for writing loans, which are typically about 0.6%, plus ongoing trail commissions of about 0.15%.
However, it has been proposed that banks should only pay commissions based on the amount of debt customers actually use for their home purchase, net any cash a customer may have in an offset account. Brokers currently receive commissions on the full value of a loan, even if customers have a significant balance in an offset account linked to the mortgage.
ASIC identified this issue among others in a review of mortgage broker remuneration in March. While the review did not call for a ban on commissions, it did list areas where there were concerns.
The recommendations were developed by a forum of banks, member-owned financial institutions, and mortgage broking associations. The forum was chaired by Anthony Waldron, executive general manager of broker partnerships at National Australia Bank.