Australia's royal commission into banking has recommended scrapping commission payments to mortgage brokers. Photo / Getty Images
Australia's royal commission into banking has recommended scrapping commission payments to mortgage brokers. Photo / Getty Images
Home loan interest rates could hike if recommendations to remove commission payments for Australian mortgage brokers also come into effect here, industry figures claim.
Brokers in Australia - like New Zealand - are paid commission by the company their customer takes out a home loan deal with.
But Australian RoyalCommissioner Kenneth Hayne QC recommended scrapping commissions for Aussie brokers, saying they should instead be paid directly by home buyers.
He took special aim at "trail commissions" in which banks make ongoing payments to brokers for the life of a home loan, describing them as "money for nothing".
Scrapping these could help ensure brokers chose the best deal for customers rather than the deal paying the best commission.
But Bruce Patten, from Loan Market, which employs 1200 brokers writing 4000 mortgages a month, feared any move to also implement a "fee for service" model in New Zealand could put large numbers of brokers out of business.
This could in turn drive up home loan costs because there would be fewer specialist brokers alerting customers to the best deals and creating competition among banks, he said.
"Why would a client have to pay for something that they got for free yesterday? Is that something they're actually going to do?" Patten said.
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Banks in New Zealand don't release figures about how many home loan deals are negotiated by mortgage brokers, but Patten thinks it is likely more than 40 per cent of the total.
He feared the Australian report could turn the local industry "on its head".
Finance Minister Grant Robertson said the Government would keep a close eye on the fallout from the Australian Royal Commission, but had already taken steps locally to protect customers.
Two reviews into the banking and insurance industry's conduct and culture by the Financial Markets Authority and Reserve Bank of NZ had identified issues and gaps in how the industries were regulated, he said.
"Some of the issues are similar to those highlighted by the Australian Royal Commission, but not as widespread," he said.
The Government now had a Bill going through Parliament designed to make mortgage brokers more accountable to a code of conduct, but warned recommendations from the Australian report could also be implemented here.
Tom Hartmann, the managing editor of a consumer website run by the Government-funded Commission for Financial Capability, expected the report to shake-up the local industry.
He questioned how brokers could deliver the best deals for home buyers while being paid by banks.
"Banks can look at mortgage brokers as their customers, instead of the borrowers, who can get lost in the mix," he said.
"New Zealanders can't grow their futures if they get advice that is conflicted, products that are not designed for their benefit, and results that are weighed down by exaggerated fees," he said.
But John Bolton, managing director of Squirrel Mortgages, said there was little evidence New Zealand customers were not getting good results from the current system.
He said about half the banks in New Zealand offered trail commissions, like those that had come under fire from Hayne in his banking report.
But the banks that offered trail commissions had not won extra market share over those that did not, he said.
Loan Market's Patten said trail commissions helped brokerages earn a steady income across the year in a business that tended to be cyclical and volatile as people took out more home loans at certain times of the year.
He said they also ensured he provided ongoing care to customers because his trail commission would end if the customer went to another broker for better advice.
Australian Government Treasurer Josh Frydenberg has already baulked at implementing the proposed ban on commission payments to brokers, helping ease fears of a significant shake-up spreading to New Zealand.
But Katrina Shanks, from the brokers' lobby body Financial Advice NZ, still called on local policy makers to take a deep breath before implementing any changes that could cause an upheaval in the industry.
