Rate Money removes clawbacks on mortgage line

Available through the 31 Rate Money franchises and the brokers who refer to them, the Rate Money House Money product line (which covers owner-occupier and investor loans spanning full doc to low doc) is now clawback and fee-free.

While the Rate Money House Money line previously clawed back broker commissions if a loan was refinanced within 12 months, the clawback and fees have now been scrapped entirely.

According to the mortgage manager, the product aims to provide “a fair and transparent solution for all stakeholders end-to-end, including lender, mortgage broker, and customer”.

Speaking to The Adviser about the change, the chief executive of Rate Money, Ryan Gair, said that lenders should be working towards better transparency and not seek to profiteer at the expense of brokers, who are the channel of choice for Australian borrowers.

Mr Gair commented: “This is a big day for the mortgage industry. The last 18 months there have been record levels of refinancing and the banks have been offering high cashback offers that were accelerating clawback levels and reducing the average length of a mortgage.”

Indeed, the Finance Brokers Association of Australia (FBAA) has previously revealed that the cost of clawbacks for brokers between 2018 and 2021 surged by 47.4 per cent, from $10,229 in 2018 to $15,077 in 2021.

Clawbacks have increased in the past year, too, amid high cashback activity and a refinance boom as borrowers roll off super-low fixed rates on much higher variable rates.

According to the latest Broker Pulse May 2023 Omnibus survey, the vast majority of brokers (85 per cent) have seen at least one borrower choose a loan with a cashback offer over one that may have been in their best interests in the past six months.

The cashbacks have also contributed to a truncation of the average home loan lifespan, which repricing platform Sherlok has suggested now sits at around 37 months — six months less than the average loan term in 2019.

Mr Gair commented: “Cashbacks have been just appalling for the industry. The consumer might have just been chasing the money and not the right home loan product. It wasn’t good for brokers because they had to work multiple times on the same application or face being clawed back and it wasn’t good for the banks — with many of them now pulling their cashback offers because they were actually costing them.

“It is particularly unfair to be clawed back for your work when you have not done anything wrong. So, we spoke with our funder of the House Money line and we agreed to get rid of clawbacks on the House Money line altogether.”

He said Rate Money was therefore “incredibly excited” and proud to offer the product line to “ensure brokers are adequately rewarded for their hard work”.

The Rate Money CEO noted that while other lenders have scrapped clawbacks, several have covered this cost by charging a higher risk fee, which, he said, “negate[s] the benefit of no clawbacks.

“We have thrown it all out the window for this offering to provide a true no-strings-attached product line.”

Peter White AM, managing director of the FBAA, welcomed Rate Money’s move to scrap clawbacks, stating: “As banks are increasingly offering incentives that are driving borrowers to refinance, many mortgage brokers have felt the brunt of the cost.

“We applaud Rate Money for their commitment to fair and transparent outcomes for all and recognise that this is a significant step forward for the industry as it acts in the best interests of the consumer.

“We want to see other lenders adopt a similar approach.”

Several non-bank lenders have made moves on clawbacks in the past year, with Mortgage Ezy abolishing clawbacks in April and Pepper Money having removed clawbacks on commercial finance products while La Trobe Financial has been one of the few non-bank lenders to have no clawbacks on upfront commissions.

[Related: Brokers urge more lenders to scrap cashbacks]