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Royal commission to impact SMEs, property investors

22 February 2019 2 minute readShare
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Both sides of government are preparing to take on changes to how mortgage brokers are remunerated, which has a big knock on effect to the SME community and to property investors alike.

The Royal Commission’s final report, released by Commissioner Kenneth Hayne in early February, proposes major changes to how mortgage brokers are regulated and paid. The federal government said it will adopt most of the report's recommendations, and the federal opposition has said much the same.

Under the current government, mortgage brokers will have a best interests duty placed on them, as well as a ban on trail commissions and volume-based bonuses on new loans.

The government will also look to review a borrower-pays remuneration structure for mortgage brokers in three years. Currently, mortgage brokers provide a free service for Australian borrowers.

Chair of the Property Investment Professionals of Australia, Ben Kingsley, fears an upfront fee for broker services would create an environment where competition severely lacks.

“It's as clear as day in terms of the cost effectiveness of having competition in a marketplace meant that borrowers pay less. That's a great consumer outcome,” said Mr Kingsley on the Smart Property Investment Show, sister title to My Business.

Further, Mr Kingsley said the changes will see property investors left in the lurch without the expertise of brokers who specialise in investments.

“The average mortgage broker who may be processing a first home owner compared to someone who's processing an investor that might have two properties, three properties or really sophisticated- it is chalk and cheese in terms of the expertise. Now, you do not find that expertise if you walk into a bank,” said Mr Kingsley.

“If I'm a new arrival to the country, there might be 20 banks that don't want to know me, but I've come with a computer science degree and five years working in Silicon Valley.

“But there's a small bank or an independent bank or a credit union who has a credit niche and they give them the loan. But that wouldn't have been found if there wasn't that broker there helping them.”

The impact on small business

When Hayne’s final report was first released, federal treasurer Josh Frydenberg was hesitant to commit to an upfront fee for mortgage brokers, in part because of the impact it would have on the small business community.

Like Mr Kingsley, Mr Frydenberg also flagged the risks an upfront fee would pose to competition in the lending market.

“What we are concerned there about is the impact on competition. We don’t want the work that is now currently with 25,000 small businesses and people working within the mortgage broking industry to just simply go with the big banks,” Mr Frydenberg said earlier this month.  

“We don’t want to give the banks a free kick. And that’s why previous findings of the Productivity Commission, and of other reports... has found this shouldn’t be changed,” he said.

You can listen to the full episode of the Smart Property Investment Show here.




Royal commission to impact SMEs, property investors
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