Banning trailing commissions and upfront payments would diminish competition in the mortgage market and damage the potential for property investors to maximise gains, a buyer’s agent has warned.
Noting that the final report for the banking royal commission recommended that lenders should be prohibited from paying commissions to mortgage brokers, and borrowers should instead pay brokers for their services, a property investor has warned how this would impact investors, as well as owner-occupiers.
Speaking on the Smart Property Investment Show – the podcast of The Adviser’s sister title, Smart Property Investment – the founder and director of Rethink Investing, Scott O’Neill, said that a borrower-pays model would have been “terrible”.
“It would have been terrible for the industry,” Mr O’Neill said. “I would personally go to a [mortgage] broker because I don’t have the time to knock on four different banks’ doors. It’s not worth it, but I’m not the masses.”
The buyer’s agent noted that most property investors have a family bank manager that they deal with, which may exclude them from accessing arrays of other viable or potentially superior mortgage products available on the Australian market.
Mr O’Neill continued: “Particularly for people with larger portfolios, like myself, I’ve got things like unit blocks, normal houses, commercial property… For me to go into a branch to go through all that with some person who has never met me would be an absolute nightmare,” he said.
Property investors potentially will not get the best deal if they go directly to a bank, Mr O’Neill asserted, because they would be only dealing with mortgage products offered by that lender.
He continued: “You need someone working for you to shop around for the best deal. A bank, if you go to them direct, they’re going to show you their set of rules, which is not going to be the best deal because there are dozens of other options out there in the market.”
Mr O’Neill added that mortgage brokers are often able to access a large range of mortgage loan products and lenders.
Competitive advantage to major banks
The Sydney-based property investor added that some of commissioner Kenneth Hayne’s recommendations to change mortgage broker remuneration would give “more competitive advantage back to the banks, which is not what we want because that could lead to higher interest rates long term.”
Further, brokers can assess the ability of property investors to secure financing based on their unique circumstances and situations, Mr O’Neill added.
He continued: “A good mortgage broker has connections within the banks. They can speak to people at the right levels and results happen quicker [and] get me better interest rates.
“And if we need to move down the track… the mortgage broker will understand my situation and it just fast-tracks everything,” Mr O’Neill said on the podcast.
He highlighted that this personalisation of service is also invaluable in getting loans approved for investors that may have had their loan applications rejected without third-party assistance.
Mr O’Neill said: “I’d probably get knocked back, and then I’d have to go and do it all over again at [different banks] and then I would be wasting my whole day with no result.”
The property buyer concluded by saying that while there was uncertainty as to how broker remuneration would look in the future, given the differing stances taken by the Coalition government and Labor Party, he agreed that the broker remuneration structure is likely to change to varying degrees, regardless of the outcome of the upcoming federal election.