Basel reforms could spark commission hike

Speaking to The Adviser, Mortgage Choice chief executive officer Michael Russell said while margins in lending had decreased over the last six months – thanks to the ongoing and aggressive competition between lenders – Australia’s lenders have more than doubled the return on equity for their mortgages.

“Since the introduction of Basel II in 2006, the return on equity for the banks on their mortgage products has more than doubled,” Mr Russell said.

“For the 2012 financial year, the return on equity for the major banks was 16.4 per cent. Yet, their return on equity for mortgages was more than double that.  So there is an opportunity for all mortgage participants moving forward.”

Mr Russell said the lenders’ low risk mortgages or low LVR mortgages were returning the greatest equity, and as such, he wouldn’t be surprised to see lenders introduce higher commissions or incentives around low risk mortgages.

That said, Mr Russell believes it will be “some time” before the industry enjoys higher commissions on low risk mortgages as Basel III is soon set to be launched and this will need to be “washed through” before any changes to commissions are made.

“I don’t expect to see much happen with commissions in the short term,” he said.

His comments were echoed by Australia’s non-major lenders, many of whom exclusively told The Adviser that they had no plans to change their commission structures in the short term.

Speaking to The Adviser, Suncorp’s general manager of intermediaries Steven Heavey said the bank had its “commission balance just right”.

“We implemented some changes not that long ago, including the re-introduction of first year trail, and for now I think the balance is just right,” he said.

In addition, a spokesperson for Citibank confirmed to The Adviser that the bank had no plans to restructure broker commissions in the immediate future.