Thousands of Australian mortgage brokers may continue receiving trail commissions beyond next year, following the federal government’s change-of-heart on getting rid of them.
But the sector says uncertainty remains about how the commissions will work after the election.
Abolishing the commissions for a broker’s services during a property loan was among the recommendations of the Hayne banking royal commission.
The government had vowed to exempt existing trail commissions and abolish new ones from July 2020.
But, after speaking to mortgage brokers and small lenders, Treasurer Josh Frydenberg revealed on Tuesday that the government had changed its mind, fearing the potential impact of the move on competition.
The issue will instead be reviewed in three years by the competition watchdog and financial regulators.
“What we’re very concerned about is ensuring that mortgage brokers continue to be a critical part of our residential mortgage market,” Mr Frydenberg said.
Dumping the reform has further distinguished the Coalition’s position on mortgage brokers from that of Labor.
The opposition has committed to abolishing trail commissions if it wins the next election and has vowed to cap mortgage broker fees at 1.1 per cent of a property loan.
The Treasurer argues that will reduce competition.
But Labor has accused the Morrison government of lacking the mettle to deal with the situation.
“It’s just all in the too-hard basket,” shadow treasurer Chris Bowen said on Wednesday.
Under the Coalition, the business model for mortgage brokers would remain in “limbo” until it was reviewed in three years, Mr Bowen said.
Banking royal commissioner Kenneth Hayne’s recommendation to abolish trailing commissions was broadly in line with changes that consumer group Choice has advocated for several years. Choice director of campaigns and communications Erin Turner said it was disappointing to see it rejected by both sides.
She said the “misconception” that brokers were a competitive force had been disproved by the Productivity Commission.
But the peak body representing the sector said the federal government’s backflip was a “step in the right direction”.
But Finance Brokers Association of Australia Peter White said the industry was still unsure of its future.
“The Coalition’s announcement to keep trail commissions has been delivered in a pre-election environment so uncertainty remains about how exactly this will work after the election,” he said.
Commissioner Hayne also recommended making borrowers – rather than lenders – pay upfront fees to mortgage brokers. Both sides of politics have baulked at that idea.
Labor confirmed on Tuesday that it would be the only one of the banking inquiry’s 76 recommendations it won’t implement if it wins the coming federal election.
There are 16,000 mortgage brokers across Australia – employing more than 27,000 people. Between them, they settle about 60 per cent of all residential mortgages.