“This would significantly reduce the reach of smaller banks and lenders that have been able to compete with the major banks via the mortgage broker channel,” the report said. “A reduction in competition and subsequent diminishing market share for smaller lenders would empower the biggest institutions to increase their margins and reduce their product range.”
But the report also indicates many mortgage broking customers don’t see value in the services brokers provide, which could provide additional headaches for the industry.
Regulation could reduce the potential for an upfront fee to shift customers to bank branches by requiring banks to also levy an equivalent fee on their customers – the so-called “Dutch model”.
According to the Australian Securities and Investments Commission, the average upfront commission paid to a broker is 0.54 per cent of the value of a loan, or $2000 on the average loan size of $371,000. Brokers would earn an another $2000 in trailing commission over four years, at the market average of 0.18 per cent.
Deloitte found last year a broker working independently as an individual sole trader reported average earnings before tax of $86,417.
The Momentum survey found 3.5 per cent of customers would be willing to pay the $2,000. Customers would be willing to pay smaller fees: 11 per cent said would pay $1,000, and 42 per cent said would pay $100.
In a report on Thursday, JP Morgan banking analyst Andrew Triggs said he expects the final report of the royal commission to ban mortgage broker trail commissions – but to keep value-based upfront commissions.
from A Viral Update http://bit.ly/2SeZdhX
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