So after much debate, cuts to broker commissions have finally come to bear on the mortgage broking industry.
Lenders have of course been nibbling away at broker remuneration indirectly for years through claw-backs and tiered commission structures based on volume and quality. But it’s fair to say that aggregators and brokerages probably hoped hard cuts to commissions would never materialise.
Over the last ten months spiraling funding costs have piled more and more pressure on lenders – and we’re now witnessing the fallout.
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Aggregation groups have been pushing to arrest dwindling lender returns through improving efficiencies and cross-selling other products, but for some lenders it seems it was not enough.
Westpac’s shock decision to slash broker commissions has galvanised the broking industry in its condemnation of both the extent of the cuts and the way they were announced.
Has Westpac made the right decision? Time will tell. By lopping 29 per cent and 40 per cent respectively off up-front and trail commissions, Westpac could effectively price its products out of the market. It will be interesting to see if it extends its decision to its newly acquired RAMS Home Loans business.
So what is a reasonable level for lenders to set broker commissions?
BankWest has seen an opportunity to grab market share and moved quickly to reassure its six highest volume groups that commissions are safe, at least until the end of the year.
Rather than cutting commissions, St George has opted to raise the bar for brokers, promising to maintain current payment levels in return for cross selling, online lodgements, better conversion rates, and meeting an agreed home loan run-off rate – a lead other lenders look likely to follow.
The daily papers now talk of how broker commissions in Australia are higher than in any other market, insisting that the third-party channel is consequently more expensive for borrowers. Time will tell if this rhetoric gains any traction.
Alex Whitlock
