Okay, this is a pretty #adult blog post to be writing, but I think it’s an important message. Australian’s have probably heard the words ‘Royal Commission’ uttered under stern breath more times than we’ve heard the new Ariana Grande single played on Fox FM.
If you’re not totally sure what it is, the Royal Commission into Banking is basically a large-scale investigation into misconduct in the financial services industry. The reason everybody is up in arms about it, is that the outcome has pretty much been a great big pat on the back for the big banks and the shitty equivalent of an overripe avocado for brokers.
The future of the entire broking industry is about as certain as a Married At First Sight partnership, meaning lots of sole traders and small businesses may lose their entire business model and income if they don’t act soon and make changes in line with new regulations.
The salient changes are that brokers will no longer receive trail commission from the lenders they write loans from – that’s the income they receive for the lifetime of the loans they take out for their clients. 99% of brokers completely deserve this payment, and are acting in the best interest of their clients at all times. They do a large chunk of their work upfront, before they receive any payment.
The Royal Commission now wants to move broking to a client-pays model, rather than a lender-pays model. At the moment, mortgage broker services are free to lenders. The brokers make their income via upfront and trail commissions from the lender – I speak more about why brokers are great here.
Now, it’s proposed that borrowers pay the broker fee, in the same way as they would for a buyer’s advocate or other financial service. The issue with this, is home buyers often don’t have extra cash to burn – especially first time buyers – so they’ll end up going straight to the lender, cutting out the middleman, and saving themselves a few bucks. The brokers, once again, are left with the proverbial overripe avocado. Buggered.
As a result. brokers’ businesses are slashed, and borrowers don’t get the help of a middleman to present them with various options from multiple lenders. They have to go to lenders directly, and get the hard-sell of their own products from a hair-slicked bloke named Jaxon in a slim fit shirt and a set of keys to a BMW on his desk. A lack of competition in the lending market will also hand all the power back to the big four.
So Should I Still Use a Broker After The Royal Commission?
Aside from giving the finger to the big banks and supporting smaller businesses, you’re retaining your power as a borrower. I know buying a home is expensive, and between stamp duty, lenders’ mortage insurance and moving costs, the last thing you want to fork out for is a broker’s fee as well, but it will be worth your while.
When we bought our apartment, our broker was a top fella called Al Jordan – now at Woodrow Finance Group, who was absolutely critical to the success of the whole outfit. Without him, we wouldn’t have our loan, we would have been completely blind to the entire process, and I would have most definitely had a mental breakdown.
It’s unclear at this stage what broker fees will look like as part of the borrower-pays model, but I personally don’t think you can put a price on the access to expertise, experience and lender insight that you get with a broker. Brokers are now going to be regulated to ensure they act in the best interests of their clients – which as I said, most were anyway – so it looks as though you’ll be almost guaranteed good service.
Particularly when buying or investing for the first time, having a broker will allow you to ask big questions and get real answers. I can’t count the amount of times I said, “Sorry Al, I know this is probably a dumb question but…”. His response was always “There are no stupid questions. Ask away”. He did all the ferrying back and forth to banks and lenders. He sorted out all the issues we ran into with my residency, property valuations and specifics. We sent him properties we were interested in and he ran reports and did his own research to make sure he was across every aspect of our transaction. That is service. That is client support. That is value.
When brokers begin charging us as clients for their services, think of the business you’re supporting, the time you’re saving yourself, and the control and guidance you’re getting in return. You really don’t want to go through the home buying process alone – so don’t. Brokers are there to help you.
Support brokers after the Royal Commission into banking and continue to value their expertise and importance in the property transacting space! I know I will!