The average annual commission earned by a broker has slipped to a record low, according to new MFAA research, which has come amid renewed calls for clawback reform.
The Mortgage & Finance Association of Australia (MFAA) has released the eighth edition of its Industry Intelligence Service (IIS) report (IIS), which assesses trends in the broking industry by analysing data from 12 of the country’s major aggregators.
The research has revealed that over the six months from October 2018 to March 2019, the total value of home loans originated via the broker channel dropped by over $10 billion (10.3 per cent) when compared to the previous corresponding period, falling to $87.5 billion – the lowest six-month value recorded since the MFAA commenced reporting in 2015.
MFAA CEO Mike Felton noted that the decline coincided with weakness in the housing market and a period of “severe credit tightening”.
“Whilst these results are a concern, the mortgage broking channel performed extremely well in the context of overall tough market conditions, with the overall market down 13.05 per cent period-on-period and 14.64 per cent year-on-year,” Mr Felton said.
As a result of the decline in the total value of broker-originated loans, the national average annual gross value of commissions collected per broker dropped 3 per cent over the same period, hitting a historic low of $128,709.
The decline was driven by a 10.6 per cent fall in the average upfront commission received by a broker, down from $75,604 to $67,554 – offset by a 6.9 per cent increase in the average annual gross trail commission received per broker, from $57,189 to $61,155.
The fall in the value of commissions received by brokers also coincided with the Combined Industry Forum’s (CIF) reforms to broker remuneration, which came into effect at the start of 2019. The CIF’s reforms restricted the payment of upfront commissions to the loan amount drawn down by a borrower.
Reductions in commission revenue have prompted calls from both industry associations and aggregators for “fair and equitable” clawback arrangements.
Connective director Mark Haron and Australian Finance Group head of industry and partnerships Mark Hewitt recently indicated that they would be lobbying for clawback reform during the consultation period for the federal government’s proposed best interests duty bill.
However, the MFAA research revealed that despite the fall in the total value of broker-originated loans and the reduction in commission revenue, the national loan book value increased by 7.3 per cent to $686.9 billion*, with the average broker's loan book increasing 6.9 per cent to $40.7 million.(March 2018 versus March 2019).
Broker market share also increased over the period, rising from 55.3 per cent.to 59.7 per cent.
As at March 2019, the broker population totalled 16,851, up from 16,787 in March 2018.
Brokers writing less for majors
The MFAA’s IIS report has also revealed that the total share of broker-originated loans settled with the major banks and their subsidiaries slipped to a record low of 56.8 per cent as at March 2019, down from 62.5 per cent as at March 2018.
Accordingly, the share of loans settled with non-major lenders (excluding non-banks and white label loans) increased to 27.1 per cent over the same period, up from 22.3 per cent as at March 2018.
The share of broker-originated loans settled with non-bank lenders also increased, up from 8 per cent to 9.4 per cent over the same period, while the share of white label loans settled dropped from 7.2 per cent to 6.7 per cent.
*The story was updated to reflect that the national loan book value grew to $686.9 billion.
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