An industry veteran has rejected the Productivity Commission’s claims that brokers receive more than $4,600 in commission on each home loan.
The Productivity Commission’s draft report into competition in the Australian financial system cited a UBS report which estimated that, in 2015, broker commissions cost $4,623 per loan on average.
But according to Sydney broker and simplyaskit founder Paul Ryan, this figure is wildly inflated and sends the wrong message to the community about how much brokers are paid.
“If that figure is based on an upfront fee, it is incorrect, because that would indicate the average loan size is around $700,000,” Mr Ryan told The Adviser. “That’s not right.”
According to the Australian Bureau of Statistics, the average loan size for all owner-occupied housing commitments was $393,200 in December 2017.
“On a $400,000 loan, a broker gets paid an upfront of around $2,600. On the trail, they will probably get about $50 a month, so over three years that adds up to about $4,400,” Mr Ryan explained.
However, brokers only get paid if a loan settles.
Mr Ryan said that, on average, between 70 per cent and 72 per cent of deals settle, which means that brokers receive no payment for up to 30 per cent of their work.
The founder said: “When you consider that to submit a loan you have to win the trust of the consumer, you’ve got to put an application together, electronically lodge that application, follow up on all the details of the application, arrange settlement and then you have three years of after-sales service. That could add up to anywhere from 15 to 30 hours work on one particular loan.
“Based on the PC report’s figure of $4,623, that equates to about $150 to $200 an hour. That is only if the loan settles. Is $200 an hour over the top? Compare that to an accountant or a lawyer. Even a plumber or electrician has a call-out fee of $100.
“I’m not quite understanding why there is so much scrutiny of mortgage brokers at the moment. I’m interested to know who is driving it.
“There doesn’t seem to be any scrutiny on lawyers, plumbers or builders on the margins they charge. There is no scrutiny on web developers in terms of the return on investment small businesses get for their websites.”
The MFAA and FBAA have both blasted the Productivity Commission’s draft report, calling some of its views on broking “limited”, “amateur” and — in some cases — “nonsense”.
The MFAA said that it was “disappointed by the limited view of the mortgage broking industry” presented in the report, arguing that its authors have “failed to understand the reasons why consumers engage brokers to act on their behalf, and ignore[d] the value that mortgage brokers have brought to the Australian economy over the past 20 years”.
The FBAA has likewise criticised some of the findings, arguing that the suggestion it could recommend removing broker trail commissions "would be the dumbest thing on the planet to do and it would be a real risk to every lender in this country.”