How property investors will be impacted by changes to mortgage broker regulation
Property experts are concerned that the royal commission’s recommended changes for mortgage brokers could see property investors take a hit in the back pocket.
Co-host of The Property Couch, Ben Kingsley, and director of mortgages at Momentum Media, Alex Whitlock, recently unpacked the impact mortgage brokers have on competition and the empirical evidence that exists of the value they give to consumers.
Speaking on the Smart Property Investment podcast, on REB sister publication Smart Property Investment, Mr Kingsley said a "critical" issue facing property investors and owner-occupiers alike is that of the changes to how mortgage brokers are paid.
The Royal Commission recommended a series of changes to broker remuneration, including a ban on trail commissions. As a result of the Royal Commission, the current government will also review the merits of a borrower-pays system in three years. Currently, mortgage brokers are remunerated by lenders, meaning their services are free to borrowers.
These changes create a challenging market for mortgage brokers, which in turn, could have a detrimental impact on competition in the lending space.
“I saw the margin squeeze that occurred when competition [in the form of mortgage brokers] came into the market," said Mr Kingsley. “It’s as clear as day in terms of the cost-effectiveness of having competition in a marketplace meant that borrowers pay less. That’s a great consumer outcome.”
Asking the borrower
Mr Whitlock said that it would be wise to bring consumers in the debate.
“No one’s bothered to ask the borrower,” he said.
“You’ve got politicians, you’ve got big banks telling borrowers what’s best for them. We went out and thought, well, we’ll ask the borrower what they think, how they rated the broker, if they would go back again.”
Mr Whitlock said that this gave rise to the Momentum Intelligence Consumer Access to Mortgage Report, where 5,800 consumers who’d taken out a mortgage gave their opinions.
He said that the results were remarkable.
“Satisfaction levels for brokers were 96 per cent satisfied or very satisfied, which is phenomenal. I’d struggle to see any kind of service that would rank that high. Whereas, you compare with the banks, it was 67 per cent. Not bad, but significantly higher for brokers.
“Also, 95.8 per cent of those surveyed said that they would return to a broker, so almost watertight. The story is very different for those who went to a bank. Only 32 per cent would go back to a bank, with the remainder planning to go to a broker.”
Mr Whitlock said that these finding are important because they put the broker value proposition into sharp focus.
“If you’ve got 96 per cent of people who have gone through that channel and are phenomenally happy, it tells you a story about how dissatisfied people are with banks and how valuable [they find] having a broker there to open up an option of lenders, injecting competition into the marketplace.
“And it’s not just about price, it’s about product innovation. It’s about flexibility. It’s about tailoring things to a particular borrower’s needs for a specific property at a particular time.”
Listen to the full What changes to broker regulation mean for property investors podcast HERE.