As you probably know by now, if there’s something that is important to me, I’ll express my opinion – often strongly, but always with well-meaning intentions.
Like so many others in the country, I was left scratching my head when recommendations from the Banking Royal Commission were recently released.
We’d all watched from afar for months as the heads of major lenders appeared before Commissioner Kenneth Hayne. It was pretty clear to all and sundry that the culture within some of Australia’s biggest companies had slipped well away from helping customers and directly towards selling products.
Unfortunately, while the hearings were unfolding, we were all progressively developing an understanding that banks were (once again) tightening their policy for those who want to borrow money.
I’m sure that by now everyone knows at least one person who has recently been subjected to having to jump through a thousand hoops, perform a pirouette and provide a DNA sample just to have a loan application assessed.
When the BRC was finally all over, we all felt that sanity would prevail and that banks would get back to supporting responsible Australians by lending money for important life-changing events. You know, like helping someone to purchase their first home, or funding an upgrade for a growing family, or for an investment property as part of a broader strategy in pursuit for financial independence.
It’s not as if home loans are something new! And with modern technology and all that stuff, how hard could it be?
Never once did I think that Mr Hayne’s BRC report would target a profession that didn’t even make an appearance at the proceedings.
It never crossed my mind that the mortgage broking sector would somehow become the scapegoat for some questionable lending decisions by some banks that allowed greed to overcome integrity and doing one’s best to help a customer.
Yet, that is what happened!
A history of mortgage broking
You see, I started my working life as an employee of a Big Four bank.
It’s many years ago now but I’ve always been grateful for the training that I received. It’s where I developed my interest in commerce and economics and it’s why I appreciate the importance of skilled debt structuring.
After a decade in the bank, I established and ran a multi-award-winning mortgage broking business for another decade. Being a broker enabled me to see first-hand the enormous value that brokers provide borrowers compared to what’s possible if the borrower deals directly with a bank.
While my focus over the last decade has been helping people on the “asset side” of their balance sheet, providing this service to Propertyology clients requires me to have direct liaison with both the banks and mortgage brokers on a daily basis.
There are some great operators that work for banks and as brokers. Without a shadow of a doubt though, the competition that mortgage brokers have brought to the table over the last quarter of a century is a major benefit for every Australian consumer.
As the mortgage broking profession has blossomed over the years there has been a steady stream of positives for consumers, including access to more lenders and more loan products with creative features, not to mention securing independent advice from a skilled professional who is working for the borrower – not the bank!
A mortgage broker’s value lies in more than just finding a competitive interest rate, or saving borrower’s heaps of running around, or reducing their frustration from dealing with a sausage-factory bank.
They have immense skill at tailoring loan structures properly, understanding the fine print of lender credit policies, as well as how to fit square pegs into round holes for tricky applications.
For property investors, good mortgage brokers are skilled at managing loan portfolios, including trying to avoid cross-collaterisation issues and, arguably the soundest strategy of all, general risk mitigation through not having all of the lending eggs in a one-bank-basket.
Plus, unlike bank staff, brokers work for the borrower, so they don’t get paid unless they deliver for their clients.
Borrowers are also much more likely to build a long-term relationship with brokers (who are business owners at the end of the day) than banks where staff frequently come and go like a revolving door.
Good apples outweigh bad ones
Absolutely no industry is immune from having a couple of bad apples among the ranks, but the mortgage broking profession is cleaner than most.
I know this because I’ve met and worked with hundreds of brokers and I’m pleased to say that the overwhelming majority are honest, hard-working professionals who, like all true professionals, put their client’s best interests first.
That was not the impression we got from the BRC. But how would they know since they never spoke to anyone from the mortgage broking sector before publicly decrying that the entire industry are quasi bottom-feeders?
Ditto, it seems to have been forgotten that brokers don’t approve loan applications – that power has always rested with banks.
So, that means that any finger pointing about “dodgy” loans being approved must be directed at the banks who have the ultimate responsibility for assessment.
As for broker remuneration, that message was also very poorly communicated to the public! “Paid a handsome sum for doing no work…” is how I recall the commentary.
Let’s clear that up for everyone. For starters, the average annual income for a mortgage broker is $82,000. Many of these hard-working professionals don’t have the luxury of a regular weekly salary, superannuation, sick leave or annual leave.
The commission paid by banks to brokers comes out of company profits (as opposed to being added to borrower loan costs as some naive people have suggested). It’s a trade-off for the transference of business overheads that banks would otherwise have if they were sourcing and processing 100 per cent of Australia’s property loans.
It really is a small price that banks pay for the invaluable service which mortgage brokers provide consumers.
The Australian public has voted with their feet over the last quarter of a century. The share of Australian property loans written through mortgage brokers has increased from about 10 per cent to close to 60 per cent today.
The recommendations from the BRC have the potential to decimate a mortgage broking profession and dozens of wonderful non-bank lending institutions whom have developed so many great products.
The only winners from that will be the Fat Cat big banks who were supposed to be the ones under the microscope.
I love mortgage brokers!
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