Bruce Brammall, The West Australian, 18 March, 2019
Bank share prices took an unexpected dive last month. And it was a moment Australians should have stood up and quietly applauded.
You should have been cheering for your own back pocket. And maybe just a little bank bashing, because it’s a sport in Australia and, hell, they deserve it.
What happened? The Morrison Government reneged on a plan to end mortgage broking commissions.
Immediately, the banks’ share prices plunged about the same amount they’d risen the previous month after Kenneth Hayne’s surprise recommendation to ban broking commissions in “The Royal Pardon”.
Now, following two backflips, the Coalition and Labor are committed to policies generally supportive of the value brokers provide to consumers, and competition generally.
Labor says it will ban ongoing trails, but legislate higher upfront commissions. The Coalition will now stick with the current model for at least three years.
Why is this good news for consumers?
Because saving brokers means you won’t be forced to deal with the banks directly and individually. And because brokers will ensure more lenders are available.
You can deal with banks if you want to! Some do. But most – 59 per cent of loans are now written by brokers – don’t want to deal directly with banks.
Banks are generally no fun to deal with (even for brokers).
They will do you over, given time. It is part of their modus operandi, to get customers in with low rates, then raise those rates over time (a slow death, like the frog in the saucepan).
Do those lenders offer to reduce or review your rates? Thppppt! Not a chance! Not unless you threaten to leave. Will your broker help you get your rate lowered with your existing lender? Any worth their salt will. And if they can’t, they’ll certainly be happy to help you find a new lender who will show some respect.
Despite their friendly advertising pitches, banks are selective about clients. They just don’t admit that up front. They make you apply. Then they select or decline.
Declining is something they do plenty of, inexplicably to outsiders, under what’s generally known as “bank policy”. The bank simply isn’t interested in that “risk”.
Some quick examples.
A teacher had been acting as department head for 18 months, earning an extra $15,000 a year in salary. Their preferred first lender would only accept their base salary, not the “acting” loading. Application declined.
Other lenders would accept the acting income. But time was now a factor.
There’s the musician, with a number of part-time teaching jobs. Plenty of lenders weren’t going to touch someone with such a complex web of income streams.
Junior partner in a large law firm, earning $400,000 a year. Perfect credit record. His salary structure was, let’s say, complex. Some may say incomprehensible. More than a dozen lenders knocked him back.
After about 15 torturous conversations with lenders, one happily took the bait. How would the customer have found that lender on their own?
A regional manufacturer was about to lose his house, with a major bank foreclosing on a commercial loan. The broker organised a non-conforming lender, who pulled out last minute. The broker found another non-conforming lender who accepted the loan. Less than a year later, the non-conforming loan was refinanced back to a major bank again, with a far better deal than the client was originally on with the foreclosing bank.
Could a bank lending manager do that?
No. Lenders only offer their own products. They’re not going to tell you about better offers elsewhere. That another lender will lend you more than them. And they will, over time, abuse your relationship.
“But you’re a mortgage broker, DebtMan. This is pure self-interest,” I hear you cry.
Yes, I’m a broker. But this is not about self-interest. My business would evolve with changes to the law. This is about what is in consumers’ best interests.
The various alternatives being proposed – particularly Kenneth Hayne’s – will not lead to better outcomes for consumers.
Up front fees paid by the borrower would decimate the broking industry and force consumers to deal directly with banks. That is NEVER going to be in the best interests of consumers. Never. Particularly those that have “situations”.
Higher upfront fees and no trail commission – Labor’s proposal – would encourage churn. Not a great solution either.
Hayne’s solution would have been a disaster for you, as consumers. Thank the finance gods … common sense is prevailing.