Will changes to broker pay benefit borrowers?

One of the most heated issues arising from the recommendations of the Royal Commission is the change in the system of pay for brokers. The aim of the commission is simple: to curb irresponsible lending practices and protect borrowers. But will these changes really benefit them?

In a report on SBS, Commonwealth Bank CEO Matt Comyn said the bank is prepared to charge borrowers a fee for taking out a loan as mortgage brokers move to a consumer-pays system.

"I think there will be clear benefits to customers over the medium to long term," he said.

He argued, however, that it would be necessary for banks to charge their direct home loan clients to maintain competition and create a level playing field with brokers.

"I think it's really important that the broking industry is certainly not disadvantaged," Comyn said.

One of the key recommendations of the Royal Commission is to ban trail commissions and all other commissions on new loans. Welcome Home Financial Advice founder Mitchel Johnston said that should these recommendations take full effect, there will likely be an upswing in the amount of lending originated through the big banks' direct channels in the short term.

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"It has been reported that people will not pay for the advice they have until now been receiving for free. The complexities of constant changes within the lending market, and a move to brokers working in the best interest of their client is, however, likely to prove to be in the general public’s favour over the long term," he said.

Johnston said this would result in a major change within the industry as mortgage brokers leave and new opportunities arise in the area of fintech.

"The industry will separate into facilitators who operate on low fees and high volume, specialists for complex lending and advisers who incorporate lending into holistic financial advice," he said.

He believes this will spur competition, as those who are left providing advice will see the number of lenders available to them increase.

"There will undoubtedly be good brokers that are caught between a rock and a hard place if these recommendations come to fruition. Unfortunately for them, what is in the best interest of the Australian public has to come first," he said.