If the Royal Commission recommendations are implemented, why will anyone need Mortgage Brokers. Won’t they in essence just do what Choice already does, ie, tell us about rates and fees? Why pay quibble about whether the broker fee is paid by the bank or borrower, if we ought really just have do the most basic checks ourselves of who is competitive, and not pay anyone the $2000+?
As with anything else, some people are either not equipped or are disinterested to canvass the markets themselves, some do not have the time, and some take comfort in someone who can present multiple options to them. Whether it works for them and the value thereof is an individual assessment.
A broker should also be able to give them an honest assessment of their ‘borrowing power’ and risks of borrowing too much and which sources may be most amenable to lend as well as the T&C. Reality about that? Lets not got there.
A typical setting might be a 2-earner couple both with full time jobs. It could be worth a few $1,000s to them to have someone do the footwork and give them a summary when it is a $500K++ mortgage they need.
Many will baulk at the upfront fee of brokers as it will be seen as a visible cost which is added to the loan. Unfortunately few will realise that the upfront fee will be far cheaper than the hidden/trailing commissions of the past…and potentially higher loan costs as the cheapest loan/loan in the best interests of the customer was not recommended by the broker (brokers recommended thise loans which maximised the brokers commissions).
Agree with @TheBBG, many will still use brokers as they don’t have the inclination to shop around, even though in today’s internet age, it is very easy to do so.
Many financial institutions also have homecall services which ine can use to shop around. This means multiple visits/meetings, but can be just as effective, if not more so, than using a broker. Once a financial institution is decided upon, it is likely that interest rates and fees can be negotiated down so that they get one’s business.
The BBG and phb, but surely what you are both ignoring is the role of Choice!
At one level Choice is supporting the change, ie, supporting an upfront fee of about $2000, inferring this is a reasonable service for your average Joe to use when seeking a mortgage, and a reasonable fee. On the other this has been a long standing traditional role of Choice to provide this guidance. Organisations like Canstar have also regularly published tables of rate, etc.
So I still question the NEED? I understand some will avail themselves, but, surely the message coming from Choice ought to be to create a situation post Royal Commission, where that is no longer the case.
As long as customers are there, there is a need by definition
I was not aware Choice was in the mortgage business in any way, save for ‘buyers guides’ and consumer advocacy.
I apologise, but I cannot connect your dots that seem to state ‘Choice should make mortgage brokers obsolete’, no matter how hard I try.
And neither will be accurate for any particular person’s situation excepting by happenstance. They rely on ‘rack rates’ and published information, both which are negotiable most of the time.
Mortgage Brokers don’t actually do very much.
They compare rate for loans from various sources. They readily admit they don’t know or source data for every loan. Choice and Canstar do this type of thing.
They ‘negotiate’ the supposed best deal for you, from their pool of loan sources! In others words they ask if that is the best each can do, something anyone can do!
They aren’t Financial Planners, not they offer such a quality service.
They do help those who have difficulty getting a loan. But, is that really help? if you can’t get a loan from a major bank, you have to wonder if you are doing a sensible thing?
That might be the case in some eyes, but Scotty and his mob are solidly behind ‘no harm to the business segment’.
Could Scotty be wrong?
They would be but who pays for the trailing commissions, the customer.
If the banks paid the trailing commissions (so the customer receives the same loan costs as if the same customer went to the same bank), then this might be a solution…however…it would impact on the banks interest margins placing greater pressure on bank deposit interest rates/returns (hitting retirees even more) and potentially the banks profits. Also, why wouldn’t the bank offer a reduced loan cost (somewhere between what the broker provides the customer and what the bank provides the broker) to encourage customers to deal directly with the banks by passing brokers.
In any event, any solution is unlikely to be in the sole interests of the customer.
I think the upfront fee (or maybe or maybe not, the customer signing away trailing commissions with full transparency of costs compared to say going to the bank) is a better solution to pay for the service and convenience of using a broker. It is no different in respects to using a broker to buy a car, insurance or a house (like a buyer’s agent) where the broker charges an upfront and disclosed fee. I don’t understand why the loan broking industry can’t fall into like with other broking industries…possibly greed is one factor why they don’t like it as they in effect get ongoing fees for no service.
I’ve never used a broker for a loan. Not knowingly.
I now wonder about the bank employed loans officers. Were they only on salary, or did they also have a paid bonus/commission scheme?
Certainly for one more recent instance where I renegotiated a loan the behaviour of the bank staff person I was working with was very different to all prior experience?
Managing the repayments for a loan requires the customer to have a proper understanding of the risks and all persomal expenditures.
There is more than enough evidence from the RC that customer ignoramce or willingness to accept assistance was exploited.
If customers are to use a broker, pay a fee and or trailing commissions, that service needs to come with a legal accountability placed on the broker. Preferably one that is personal on the broker. And not just another insurable risk, the cost of which will find it’s back to the customer.
It would appear to be be much simpler if the banks carried the cost of the service as part of their overheads. And that regulation required the banks to service all applicants equally, irrespective of circumstance or loan value.
Most mortgage brokers work for the lender and not the borrower. Those mortgage brokers (lets call them ticket touts) get commissions from lenders and so they shop around to get the best commission for themselves. Lets be clear - they are not necessarily looking for the best deal for the borrower. The borrower might get lucky in getting a loan for the best price and conditions - but there’s no guarantee because the mortgage broker is not working for the best interest of the borrower.
Don’t think that all the cost of the upfront and trailing commissions is worn by the bank. You would be naive if you do. Of course the bank is going to reimburse itself by taking the equivalent amounts from the borrower.
When a borrower gets a personal load say for a car, the borrower does not have to pay a trailing commission for the life of the car. There’s no difference in a housing loan.
Banks, when approached for a housing loan, don’t say go away and find a mortgage broker. They talk about giving a loan for a house.
It’s not hard to shop around. People do it all the time for schools, for cars, for shampoos. There’s not much difference in shopping for housing loans. This was how it was done long before avaricious mortgage brokers turned up for the money pot.
I’ve always done it myself. I can do what a broker does and find out the best loan for me and my circumstances. Whilst I understand that some people can’t, or won’t, I have never regarded brokers highly.
I don’t understand your point. Whatever the NEED was before the Royal Commission, the NEED should be about the same afterwards. (Lazy people, people who are not financially literate, people who are not numerate, people who do not have access to the internet or choose not to, whatever.)
However if a consequence of the Royal Commission is that trailing commissions are banned and hence the upfront cost is higher, that may discourage some would-be customers, and that could send the industry into a death spiral - and remove the service whether there is a need or not. (Sorry, people, ScoMo could be right. I have a suspicion though that the legislation in response will come from a Shorten government later in the year, as there are only a handful of sitting days left before the expected election - and the legislative response should be carefully considered, not knee-jerk.)
I would like to see trailing commissions banned - but of much greater concern is the question of whether an adviser or broker (or any other intermediary) acts in the interests of the customer. That is however more difficult to implement in the justice system.
I would like to pay the stamp duty on the purchase as a trailing commission to the government. LOL. Can’t see the government agreeing to that any time soon.