The Royal Commission into the Misconduct of the Major banks has been hard to miss. This is what you need to know.
First. For any clients who have trusted Byfields Finance Solutions to help you with one of the biggest financial decisions in your life – Thank You. Rest assured we will keep offering you the best financial outcomes possible with our service, advice and access to up to 35 lenders to choose from & to play against each other to make sure we get the best deal for you. Not for your bank.
There has been just one recommendation about Mortgage Brokers.
Now this may not surprise most of you…. There has been a lot of Politicians & Media discussing this recommendation with very strong opinions, but with very little knowledge.
To summarise. Instead of being penalised for their misconduct with fines or jail, the Big 4 Banks have been rewarded by this recommendation that is expected to:
- Remove almost all competition for the same Big 4 Banks who were the primary cause of the Royal Commission.
- Suggest you pay a fee of thousands of dollars to organise your own loans, regardless if that is through a Bank or using a Broker. Passing the processing cost they currently pay to you, and saving the bank the same amount (adding tom their profits)
Sadly, this is not a joke.
If you require proof. Just note the combined share values of the Big 4 Banks increased +$19 billion or up to 8% higher, the day after the report was released. To put that in perspective it is the Big 4 Banks highest single day gain on the ASX in over 10 years. Economic experts know this recommendation benefits the Big 4 Banks. You should see this too.
Please remember that Mortgage Brokers are here to help YOU get the best deal. Not your bank.
For those of you that want to be informed and understand what is happening without all the smoke and mirrors of Politics & Media, this best section is for you. I would love to discuss with anyone if you have questions and want to understand better.
The Facts & Myths about Mortgage Brokers
- Over 59% of Australians just like you, choose to use a broker. Not because they have to, but because they are smart enough to know a Broker will get them cheaper loans, show them multiple banks who will approve their loan and take the hassle away of dealing with the bank directly. Simply a better service.
- Only 0.48% of all complaints to the Financial Ombudsman are about Mortgage Brokers. Considering we process almost 60% of all loans, that gives you a very good indication of how professional and trustworthy we are. Especially compared to the Banks.
- Since Brokers were introduced into the Australian market, the gross income Major banks earn from interest (NIM – Net Interest margin), has decreased from almost 5% to under 2%. This is not a coincidence. This is because Brokers help you shop your loan around to get the best deal. See graph below.
- It is important to know that using a broker does not add to the cost of a loan. It is cheaper for a bank to use Brokers to sell and process your loans. Much cheaper than having branch networks where the bank lease buildings, pay utilities and pay staff to do the exact same thing for you. This is no different to how any business outsources an operating expense.
- This is proven by the fact that almost no other banks outside of the Big 4 banks have national branch networks: AMP, Macquarie, Pepper, Liberty, and ME Bank to name just a few. All of whom will also cease to exist if they don’t have brokers to sell their loans. Further supported by the fact Major Banks are closing branches (Westpac just announced they are closing 22 branches)
So why did the Commissioner think this is a good idea?
- The primary reason the Commissioner has suggested this was a better idea for you, is he wrongly assumed that because Brokers are paid by banks that our loyalty must be to that bank and not our clients. Importantly, what he has failed to understand is that Brokers don’t work for just 1 bank. We work for our clients & could be paid by any 1 of 35 different banks (who all pay the same) & this creates competition to offer you the best deal to win your business.
- How did the Commissioner come to this point of view? He did not consult the public or any industry body or apparently the existing government reports on competition that are held supporting the competition that Brokers drive in the market (Productivity Commission Report & ASIC Report).
Why should you care? How are you affected?
- Consumers just like you, will be asked to pay the cost to set up you own loans either through a bank directly or Broker. This is instead of your chosen bank covering this cost. Moving this cost from the Banks, to you. On a standard size mortgage, we estimate this will cost you $2,500, or more.
- Unfortunately. The reality is most Australians simply won’t pay a fee like this. The result will be only the wealthy could afford & benefit from it. Because of this over a short period of time Mortgage Brokers & all the non-major lenders outside the Big 4 Banks could disappear.
- As most other banks don’t have branch networks, they will not be able to compete with Big 4 banks without brokers to distribute their products and service their clients. This represents the end of competition. We are talking large banks such as AMP, Macquarie, Pepper, Liberty & ME Bank, who will also leave the market or fold.
- With no competition to keep the Big 4 Banks honest, they will be able to increase their interest rates again to increase profits.
Politics & Big Banks
If you feel like there has been a lot of talk about Mortgage Brokers since this report, and interestingly very little attention on the Big 4 Banks who were actually the primary reason for the Royal Commission, you would be right.
Let’s focus on the real problems here and not fall for the smoke and mirrors. Don’t be fooled to think attacking mortgage brokers is in any way penalising the big 4 banks. If fact it is quite the opposite.
- The Liberals & One Nation parties have already acknowledged this. They have advised they will not support this one recommendation as they know it will be a “Big free kick” to the Big 4 Banks in Prime Minister Morrisons’ own words and he wants to support Brokers and have more competition. Not less.
———————— UPDATE 21/03/2019 —————————-
- The Liberal party have since advised they do not support changing any of the commission structure in place, including trail for the support we provide. They feel it is best for the consumer and competition to leave this the way it is.
- One Nation & Pauline Hanson specifically, have been very supportive & vocal that there should be no change to the Mortgage Broking Industry. She has been critical as to why the Government is even looking at brokers, when the focus of the Royal commission detailed the misconduct of the Big 4 Banks.
- Concerning Labor has changed their position on this issue three times since the report as released. Initially thinking clients paying banks & brokers for their services is somehow better for you the consumer. This suggests they don’t really understand how to mange the economy or how competition works.
- Most recently Labor have suggested Brokers should get paid twice our normal fee (upfront) to help you with your loans, but not receive a trail at all. This appears to be change for the sake of appearing to change something. I fail to see how that is a better scenario for you the consumer either.
Thanks for your time to help get the facts out there and share my opinion also. I hope you feel you now understand the whole position better and are determined to not be fooled by lazy media reporting or political spin.
Let your friends, family, colleagues and Politicians know you want to keep competition alive.
- If you have experienced & value the service we offer, we need your support. Tell your friends, family, colleagues to use our free service to review their current Loans now.
- Tell the Politicians to put you the consumer, ahead of Big Bank profits. Please click here to sign the official petition. It takes just 30 seconds to note your name and email.
Director – B.Bus, Dip.FMBM
(08) 9416 2222