The owner of a South Coast mobile lending franchise fears competition will be wiped out and local jobs could be lost, under the government's crackdown on the mortgage broking industry.
Nowra’s Terry Rayner, who owns a mobile lending franchise, is fighting back against the banking royal commission's recommendations to abolish commissions for mortgage brokers.
Commissioner Kenneth Hayne's final report, released last week, recommended mortgage broker commissions be abolished in all forms with customers paying the broker directly instead.
The government has taken the recommendation on board, announcing it would ban trailing commissions, but would not do away with upfront fees.
Mr Rayner said he had “serious concerns” about the effectiveness of the proposed changes, and believes they will do more harm than good.
“The apparent desire to hold a few dishonest brokers to account by penalising thousands of excellent honest businesses and their staff rather than directly address the problem is a complete over reaction, and I propose one that will have a myriad of unwelcome and significant downside consequences for borrowers,” he said.
Mr Rayner’s gross business revenue is about $1 million per year, and he employs seven full-time staff. He said approximately 50 per cent of his revenue came from trailing commission and the other 50 per cent from upfront commission. If the proposed changes go ahead, he suspects his gross business income will fall to between $200,000 and $250,000.
My business and its value, built up over 11 years, would effectively be destroyed.Terry Rayner
If this occurs, he will only be able to retain one staff member, and would be on a reduced income himself.
“My business and its value, built up over 11 years, would effectively be destroyed,” he said.
“Now extrapolate that across the entire mortgage broking industry and you can see that it will have a devastating effect on employment, thousands of small businesses ruined.”
Mr Rayner said the customer would also be impacted, with less access to small lenders and less access to credit.
“People use mortgage brokers so they don’t have to do the legwork involved comparing indecipherable bank offers, interest rates and lending policies, and get a faster and better deal than they could achieve by using their own efforts,” he said.
“If thousands of brokers go out of business it will be a lot harder for people to get a loan.
“It removes the access to small banks with no branches, and pushes people to the big four banks. That’s going to take them longer to get a loan and they won’t get the best deal available.”
More than 60 per cent of all loans are written by mortgage brokers, which proves their worth, Mr Rayner said. By removing trailing commissions, upfront commissions could rise and put pressure on the cost of loans.
“By eliminating the upfront fee based on the drawdown amount and asking the borrower to pay it directly to the broker, and more particularly by eliminating the trailing commission paid to the brokers, I believe the industry will be effectively destroyed,” he said.
“Does anyone seriously think borrowers will be prepared to pay thousands of dollars to a broker for their home loan? At the very best the broking industry will be downsized to a mere shadow of what it is today.”
Mr Rayner said eliminating commissions was not the most effective way to tackle problem of unethical brokers, and said other options for regulating the industry should be explored.
“It is not okay to destroy the value of thousands of small businesses, and to cause widespread job losses,” he said.
“This issue is too important for the health of a very important industry that affects the vast majority of Australian families.”