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Jessica Darnbrough
Rumours have emerged that a second bank is poised to increase its up-front commissions, a further indication the commission cycle has turned in favour of the broker.
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Last month Macquarie Bank announced it would lift its upfront broker commission from 0.60 per cent to 0.65 per cent with an additional increase to trailing commission from 0.15 per cent to 0.20 per cent for year four onwards.
Several mortgage managers followed Macquarie bank's lead, announcing increases to their up-fronts, however the banks have remained silent so far.
But speculation has today surfaced that Bankwest is considering upping its broker commissions in a bid increase volumes.
According to a senior industry source the non-major recently discussed introducing a ‘producers bonus’ based on volumes for its accredited brokers.
This is not the first time Bankwest has tweaked commissions.
In 2011 the bank launched a quality bonus promotion that allowed brokers to earn an additional 10 basis points in upfront commission for submitting quality loan applications.
As a distribution channel brokers are increasingly more significant to the banks. They are also a cost effective one.
Data from JP Morgan shows the third party distribution channel currently accounts for 43 per cent of all loans written – and this number is growing year on year.
According to Oxygen’s chief executive James Green the influence of the broker channel coupled with increasing competition to capture a shrinking pool of borrowers will inevitably drive commissions higher.
“The banks have cash on their balance sheets that they are looking to lend. You’ve basically got two levers – to drop rates or to increase broker commissions."
Mr Green added that discounting is in principle considerably more expensive to the banks than applying a modest increase to up front commissions.
“If Bankwest and Westpac increased their up-fronts by 10 basis points to bring them up to 60bp, which is in line with the rest of the market, that would effectively only cost them 3 basis points based on the average loan life of 4.1 years,” Mr Green said.
Over the last 12 months a number of other lenders have revised their commissions.
In November 2011, NAB removed its “star rating” segmentation model – effectively lifting the commissions it pays to more than 6,000 brokers to 65 basis points. Two weeks later Suncorp Bank reintroduced first year trail.
