By now you would all have seen and heard about the concerning news on TV, radio and social media regarding recommendations from the Royal Commission (RC).
What started out as an investigation into banking misconduct has ended in a ploy to have a go at mortgage brokers and the everyday Australian client looking to fund their home.
Rael, Managing Director of House & Home Loans and long-standing broker of 18 years, together with the House & Home Loans team, need to add our voice of reason and try to provide some clarity to the very cloudy waters.
Mortgage brokers account for over 60% of new mortgages written in Australia. You can then understand the impact that the RC will have on the market at large.
Therefore, we wanted to clarify a few myths with real life responses as to how this will affect you as the customer:
Myth 1- Who pays the broker? Why is this “hidden”?
Our team explain this to every client.
Currently, we get paid an upfront commission to do the work from application to settlement. Every client receives a loan proposal and quote from us that discloses this commission. It is again disclosed after approval, on the loan offer that you sign.
Almost all lenders pay the same percentage of commission therefore, there are no conflicts of interest.
There are a select few lenders out there that pay a higher commission. However, they offer a very specialised type of product for a specific client and are rarely used for the everyday client.
IF, however the recommendations suggested by the RC come into place Brokers will be paid on a fee for service basis, leaving the customer out of pocket to pay the broker instead of the lender.
This is only a recommendation and is NOT in effect YET.
We need your help to ensure that this does not come into effect!
Myth 2 – My broker only offered me a choice from 2-3 lenders, even I could have done that.
We provide choice and expertise in choosing your loan products. Every client’s solutions are individually tailored to their needs and requirements. We have almost 40 lenders to choose from so a lot of hours go into selecting lenders through training, BDM conversations and general research.
If the recommendations come into place, you would be expected to compare rates from 40 lenders and have the expertise to understand every product they offer.
If you are knocked back by Lender A, they will not recommend Lender B as most times they do not even know what other Lenders offer.
We give you choice and therefore, control over your own finances.
Myth 3 – Interest rates are the most important loan feature!
Yes, interest rates are important, but it only makes up one of the criteria when we recommend a lender for you. Every client has a unique set of circumstances and therefore, each solution will be different. Sometimes the final decision comes down to rate, but often it is about the features requested or unique aspects of your employment that only meet a limited number of lender criteria.
Being trained and familiar with lender criteria across a range of lenders, we would be able to match your criteria to the best lender and product to suit your needs.
Myth 4 – My interest rates are higher since I went with a mortgage broker
In most cases, we have been able to get BETTER interest rates for our clients’ when compared to those offered direct from the lenders on our panel.
Often, where we were unable to negotiate a better rate for an existing customer, we have advised the client to remain with their current lender. The ultimate goal of every Broker is to get the best deal that suits their clients’ needs. This may not always be achieved through a refinance!
The interest rate is not inflated to pay for the Brokers commission!
If you go to the lender directly, they must pay their employees to do the work. In most cases, it is more economical for lenders to have the client go through a Broker.
So, in reality we actually drive interest rates lower as we are constantly comparing each lender, ensuring they stay honest with their interest rates.
Myth 5 – Trailing commission is added to the interest rate
We are also paid a trailing commission which is there to help us sustain and service you, as the client, whether you are with Lender A, B or C. Again, almost all lenders pay the same percentage of commission so there are no conflicts of interest.
We have had clients that have been with us since inception, 18 years ago. Over that period, we have regularly had reviews with them, discussed ideas, strategies and helped them sort out banking issues. This is what the trail commission pays for! It is for the ongoing service and support long after the loan has settled!
At present, with the competitiveness between lenders, our team is spending a large amount of their time re-negotiating interest rates with lenders for clients. This does NOT earn us an additional income as it is paid by the trailing commission.
Furthermore, we only get paid when a loan settles. Therefore, in all cases where we meet clients who do not proceed, do a product switch and/or re-negotiate interest rates we do NOT get paid by the lender.
If you went into a branch, the lender would use this trailing commission to pay their staff. The trail is paid from bank profit.
Myth 6 – The Royal Commission recommendations will give a better consumer outcome.
IF the recommendations come into place, you as the customer will be expected to pay a fee for the service provided by a Broker and/or the lender to get a home loan. This could reach thousands of dollars which simply does not benefit you.
How is that a better outcome for you?
A significant number of lenders with very competitive offerings work almost exclusively through Brokers. IF the recommendations come into play and Mortgage Brokers no longer function in the market, how will YOU have access to those lenders?
YOU will be under the control of the major lenders with little informed choice and could possibly face higher rates due to decreased competition and the monopoly power of the big lenders.
Do YOU want that?
By now you will start to understand that the recommendations are not good for competition and the finances of the everyday Australian. We are sure you are as frustrated as we are. Please see below to see how you can help.
As a group of Mortgage Brokers, the Royal Commission did not hear from any of our happy clients. In fact, some of the stories over the few days of “testimony” were based on loan products that don’t even exist anymore.
How can you help?
There are a few ways you can help, we are going to try and make as much noise to raise the concern as possible:
ADD YOUR VOICE TO THE PETITIONS
Please click on the links below, sign the petition and use the prefilled email to contact your local member to let them know you are concerned about the Royal Commission changes!
If you feel as strongly as we do, please share these links on social media. If you do this, please tag the House & Home Loans pages (Facebook and LinkedIn) and your team member if you are connected.
SEND US A TESTIMONIAL
If you could write us a testimonial (via reply email) or clicking on the link below, nothing too elaborate – just a few lines to explain why you used us as opposed to going to the lender directly.
FOLLOW US ON SOCIAL MEDIA
Please share and like the posts we will be posting as the more awareness we get the better!
FACEBOOK and LINKEDIN
House & Home Loans: https://www.facebook.com/househomeloans
The House & Home Loans Team:
Rael, Ameesh, Mark, Harinder, Rachel, Libby, Frank, Mushy, Natalie, Adam, Trevor and Liz