Much of the fallout from the Royal Commission inquiry into financial misconduct has so far focused on the so-called Australian Big Four banks as well as wealth investment funds. However, some of the affected businesses that feel threatened by the looming set of new regulations are now set to try and stand their ground.
Mortgage brokers are likely to struggle most in the wake of some of the revelations, which included poor lending practices for those seeking a loan to buy a home. This led to perceived widespread distrust from the public in terms of those offering mortgages, especially since three out of the Big Four banks then hiked up their mortgage lending rates out of cycle to cover profit margins after the inquiry revealed their issues.
The web of lending is highly intricate in parts, and the Royal Commission unearthed that banks paid several mortgage brokers fees to facilitate new loans. It said that it plans to change the ways in which these businesses receive payments.
This has led to numerous mortgage brokers deciding to fight back. They have invested in a series of advertisements for nationwide release to try and shore up support for keeping the situation as it is for now.
The inquiry suggested that these types of payments, termed trailing commissions, are problematic because they could encourage unsafe lending due to the conditions needed to receive the payments from the banks. They could lead to longer loans at higher borrowing rates that people are more unlikely to pay back in full and on time.
Commissioner Kenneth Hayne released an interim report, saying that ‘value- and volume-based remuneration for intermediaries in the home loan industry has been an important contributor to misconduct and conduct falling short of community standards and expectations.’
However, mortgage brokers feel that they are being unfairly maligned and have joined together to fund a national advertising drive in all major media formats, including print, digital and broadcast.
One of the groups involved, Australian Finance Group, said that its industry is a positive one that allows for much more competition in mortgage lending. Its CEO, David Bailey, said that any new frameworks and regulations introduced would have the opposite effect of what the inquiry intended. He added that this would ‘result in an uneven playing field being further skewed towards the major banks and away from efficiency and competition.’
Bailey said that this would just lead to greater vertical market integration and would benefit the banks by enabling ‘consolidation around their business models.’
Bank executives from different regions in Australia have also begun to voice concerns that a centralized mortgage lending policy would heavily impact on those buying houses in rural areas, where circumstances and incomes may differ.
There are also growing worries about shifting the state of mortgage lending when house prices are dropping in most major cities. Overseas investors are withdrawing from the process and no longer seeing real estate as a safe bet, which could compound the issue
With over half of all mortgages going through a broker in Australia, new regulations could mean massive disruption to the market if brought through too quickly. However, Hayne said that any reforms from within would not be enough and that the level of encouraged borrowing is still too high.