What have you done Royal Commission?
We all jumped for joy when the government announced The Royal Commission into misconduct in the Banking, Superannuation and Financial Services Industry. That’ll teach the big banks for ripping us off all these years!
Who were the winners and who were the losers?
The answer isn’t as simple as you would assume.
Yes, the average punter will pay less fees to banks on their everyday savings account and the unscrupulous “fees for nothing” will disappear, but is this really where the banks make their money?
It certainly has been a big revenue stream in recent times but if we look back a little further to the traditional banking model, banks earn income from lending money. Plain and simple! Before you all jump up and down and say, “but they have tightened their lending criteria to be responsible corporate citizens so how are they going to lend more money”, don’t you worry they will find a way.
One of the findings of the Royal Commission was a recommendation to abolish ‘trailing commission’ paid to mortgage brokers. For those of you unaware of what this is, essentially it is one source of mortgage brokers income. Typically, they receive an upfront fee to process the loan application and see it through to approval and they also receive a small percentage of your loan value as a commission on a monthly basis, called ‘Trail’.
Trails serve multiple purposes
- It creates an income stream for the Mortgage Broker
- It creates an asset value for the broker. Without the trailing commission the typical mortgage broker has a greatly reduced income and a business which essentially has no value to sell.
- It allows the mortgage broker to have income to continue to service you, the customer.
What does this all mean to the average person wanting to borrow money?
If these recommendations pass, a Mortgage Broker will be something you read about in the history books and secondly it will be back to dealing with the banks direct. No more easy shopping for the best deal through a broker who accesses to 30 lenders. Nope, you will have to become a savvy broker overnight and do all the legwork yourself, including visiting all 30 lenders..
What do the banks think of this?
Of course, the banks will focus on the other areas of their business that the Royal Commission has taken income away from. This will be to deflect the public and the media from the behind closed doors parties they will be having celebrating the major win the Royal Commission has potentially handed them. Once again, the most profitable sector of their operations is under their control.
And of course, what about the tightening of credit to give the impression of being a good corporate citizen? Well watch this space, there will be a flood of new and innovative loan products on the market perfect for the unsuspecting public to jump right in!
Yours in Property
Jason.
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Jason has been involved in the property industry since 2007 in varying capacities. His strong accounting and business management background has provided a solid foundation for making strong information based decisions rather than emotional ones, something he is keen to share with his clients. Helping to guide people through the minefield of misinformation is very important to Jason. Good information is king!