This article is from the Australian Property Journal archive
SHARES in ASX listed brokers Mortgage Choice and Australian Finance Group (AFG) fell sharply in the wake of the Hayne royal commission.
Mortgage Choice fell by 26.6 cents or 25.24% to close at 78.5 cents, wiping $33.124 million from its market cap. The company is now trading significantly below the 52-week high price of $2.56.
Australia’s largest mortgage AFG took the biggest hit, fall 37 cents or 29.13% to close at 90 cents, losing $79.48 million form the company’s value.
Shares in both companies tumbled after the Hayne royal commission proposed three recommendations including eliminating trail commissions, changing up-front commissions to a user-pay model and regulating mortgage brokers as financial advisers.
The commissioner argued that the changes would remove potential conflict of interest and ensure that brokers are acting on behalf of their customers, rather than the commissions they receive from the banks.
AFG chief executive David Bailey said the full market and economic impact must be considered.
“With market share for the mortgage broking sector at an all-time high, customers clearly trust mortgage brokers. This fact should be front and centre in the minds of policymakers.
“At a time when navigating the complexity of the Australian mortgage market is more difficult than ever for consumers there is a danger the proposed changes, if not handled properly, could place assistance out of reach for some customers.
“Those hardest hit will be low-income earners and the changes could deliver pricing power and higher margins back to the major banks.” Bailey said.
Mortgage Choice CEO Susan Mitchell said, “The recommendations regarding broker remuneration need to be thought through carefully by the decision makers. The proposed changes could have a large impact on the mortgage broking industry and therefore competition within the home lending sector.
“Ultimately they could give more pricing power to the major banks which would lead to less choice, less access to credit and higher interest rates for consumers.” Mitchell said.
Consumer advocates Choice called on the government to adopt the changes. CEO Alan Kirkland said the commission’s recommendations present an opportunity for mortgage broking to serve everyday Australians and not big business
“Big financial decisions like buying a home are life changing. People go to a broker because finding a mortgage is complex, and they want advice about what’s best for them. As the royal commission points out, the system doesn’t guarantee that now.
“CHOICE has been investigating the mortgage broking industry for years finding that all too often the big banks influence over the mortgage broking sector has led to bad outcomes and higher costs for borrowers.
“Commissioner Hayne made it clear that the broking industry requires a complete overhaul – in particular, all commissions for mortgage brokers should be banned. He said this should happen within three years.
“The government response fails to follow through on this recommendation. Crucially, the government will allow brokers to continue to receive upfront commissions, paid by banks, which get larger with the size of the loan.
“This breaks one of commissioner Hayne’s key rules for fixing the system, which is that conflicted remuneration such as commissions should be banned. The reason he said they should be banned is because they create incentives for brokers to recommend what’s best for the bank, not what’s best for the person seeking a loan.”
Kirkland says the broking industry outrage and PR spin needs to be rejected by Parliament.
“We’ve seen the mortgage broking lobbyists out strongly in the last 24 hours, conflating their self-interest with the public interest to try to stop important changes.
“We have seen a furious lobbying campaign by the broker industry over the past 12 months, in response to reports by ASIC and the Productivity Commission that pointed to problems in the broking industry. We can’t let the Royal Commission report be watered down by lobbyists in its first 24 hours,” Kirkland said.
Australian Property Journal
