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Investors to be left with ‘luck of the draw’ in broker regulation

Ben Kingsley

Property investors will lose a key partner in strategy and experience, and end up paying more, should the recommendations to change mortgage broker remuneration go through, experts fear.

The Property Couch co-host Ben Kingsley, who is also chair of the Property Investment Professionals of Australia, said that if Commissioner Hayne’s recommendation for a borrower to pay the broker a flat fee for arranging a loan kicks in, there would be a significant lack of competition for the banks because consumers would be driven away from paying more.

“It’s as clear as day in terms of the cost-effectiveness of having competition in a marketplace meant that borrowers pay less. That’s a great consumer outcome,” said Mr Kingsley on the Smart Property Investment Show, sister publication of Nest Egg. 

Further, Mr Kingsley said the changes will see property investors left in the lurch without the expertise of brokers who specialise in investments.

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“The average mortgage broker who may be processing a first home owner compared to someone who’s processing an investor that might have two properties, three properties or really sophisticated – it is chalk and cheese in terms of the expertise. Now, you do not find that expertise if you walk into a bank,” said Mr Kingsley.

“If I’m a new arrival to the country, there might be 20 banks that don’t want to know me, but I’ve come with a computer science degree and five years working in Silicon Valley.

“But there’s a small bank or an independent bank or a credit union who has a credit niche and they give them the loan. But that wouldn’t have been found if there wasn’t that broker there helping them.”

Momentum Media director Alex Whitlock believes investors will be at the mercy of bank staff, who may not have the same level of knowledge and experience in the investment space.

“As an investor, if you go to a bank branch, you get whatever chump is stood there will deal with you. And you’ve got the luck of the draw,” said Mr Whitlock.

“Now, investors, when you use a broker, you’ve got the chance to go and find... and there are lots of brokers that specialise in investment. It is such a nightmare, and we will go back to this again and again – you walk in the branch and you’re at the mercy of whoever’s there.

“Now, the question I would ask is, whose best interest is getting rid of and diminishing a channel that offers choice when you have a very fundamental proprietary channel that you can control things?”

The political play

Prime Minister Scott Morrison has publicly backed mortgage brokers, with the government refraining from agreeing to move to a consumer-paid fee structure.

However, it has agreed to ban trail commission next year and will look at the feasibility of moving to a consumer-pays model in three years’ time.

While initially supporting all of the recommendations in the royal commission report, the Labor Party this week softened its approach towards brokers, backing away from the consumer-pays model and calling for a lender-paid standardised flat fee.

You can listen to the full podcast here.

Investors to be left with ‘luck of the draw’ in broker regulation
Ben Kingsley
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