Media Statements

The executive director of Australia’s peak body representing finance brokers has slammed the section of yesterday’s draft report into competition in the Australian financial system – released by the Productivity Commission (PC) – that refers to brokers.

Peter White of the Finance Brokers Association of Australia says there has clearly been a lack of research by the PC because what they are calling for either already exists under legislation or are a part of reforms already being worked on by the industry in association with ASIC and Treasury.

“The authors of this report should be embarrassed, because it was full of incorrect figures and misinformation, even getting the number of brokers wrong.

“Honestly, how can an organisation like the Productivity Commission be so clueless about a major industry they are supposed to be researching?”

Mr White said the preparation of the report was done with no consultation with the industry.

“One of many examples of the PC’s lack of understanding is the call for disclosure of broker commissions when this is already in legislation and has been for years.

“They clearly have no idea about the current legislation and haven’t bothered to talk to ASIC about the current comprehensive reform process being undertaken with industry right now.”

The broking head, who has been involved in the industry for 39 years said that if it wasn’t for brokers in Australia, there would not be the pricing competitiveness and product enhancement that exists today.

Examples are redraws, offset accounts, lines of credit against a residential house — all brought in by the competition and the development of products in the broking sector.

“Finance brokers represent over half of all mortgages written in Australia and they do so within a professional and highly regulated environment.

“There would not be a week where I’m not in discussions with regulators or government on behalf of our industry, and together we have increased accountability and transparency, while lifting standards.

“If a finance broker provided a customer with the level of misinformation that is in this report from the Productivity Commission, they’d lose their licence.”

The Finance Brokers Association of Australia (FBAA) is sceptical about moves by the big banks to set aside hundreds of millions of dollars to enable them to offer big discounts in the property borrowing market.

As reported by the Australian Financial Review, the big four have allocated $600m between them to offer rates that haven’t been seen in more than 60 years.

At the same time, smaller lenders are being squeezed out and FBAA executive director Peter White said the first thing that comes to mind is the caveat emptor – buyer beware.

“Nothing comes for free and if it seems too good to be true it probably is,” he said.

“If what is being reported is the case, then this in essence enables the banks to buy business to increase their databases and profits.

“They will also cross-sell insurance and financial planning, plus a whole swag of other products.”

The big banks hope their near-record low interest rates will incentivise borrowers to invest in the property market in light of indicators that it is starting to cool off. This strategy is also about encouraging borrowers to swap lenders, so it’s not just about buying property.

Mr White said it is yet another example of those banks distancing themselves from the rest of the market indicators, while increasing their profits along the way.

“Once you’re on the hook, the big banks increase the margins on their existing loan books and make a huge profit to benefit their shareholders, their own jobs and pockets.

“Cheap introductory interest rates with lenders has been going on forever and this, if it is the case, is just a current variation of the theme.

“They aren’t giving away $600m as such without a pay day.”

The nation’s peak body representing finance brokers has welcomed drops in home loan mortgage rates by some smaller lenders, saying it would benefit borrowers if the big banks followed suit.

The Finance Brokers Association of Australia (FBAA) says lenders have cut their rates in a move aimed at attracting owner-occupier and investment borrowers.

“It is good to see the non-banks, second tier and small lenders supporting home borrowers,” said FBAA executive director Peter White.

“But at the same time, it is disappointing the big banks like ANZ seem disinterested in trying to work with borrowers by doing the opposite and putting their rates up.”

Mr White hopes that at some point, the big five will come to the conclusion that using their size to take advantage of the market is not helping anyone.

“We hope in 2018 the big banks remember where their profits come from, and that is borrowers,” he said.

“And we encourage the banks not to stab borrowers in the back with out of cycle interest rate movements, or unjustified fee hikes.”

Fluctuations in the housing market are not unusual, according to the nation’s peak body representing finance brokers, the Finance Brokers Association of Australia (FBAA).

Playing down talk of a pending housing bubble burst, executive director Peter White said the reality is that property values are cyclical.

“Every seven years or so housing prices heat up and then cool off and the market takes corrective measures in response,” he said.

“The main risk to the housing market now is the extraordinarily long low interest rate environment in Australia.

“There is no question that interest rates are going to go up and as they hit six or seven per cent, it will cause financial hardships for some borrowers.”

Mr White said that doesn’t mean existing loans were wrong at the time they were written, rather, it’s a market movement on variable interest rates.

“That’s where the buffers being pushed out on serviceability calculations are having an effect to ensure that as the market rises, people can still afford to service their loans,” he continued.

“The problem doesn’t necessarily lie with the mortgage. Australia has one of the world’s highest users per capita of credit cards.”

Mr White said people are used to having a spare 100 dollars a week to spend on consumer goods because of lower interest rates, but that buffer is disappearing.

“Stresses in the property market in the future will be caused by interest rates going up.

“People who can’t afford to service their debt will potentially start selling their assets, which will cause a property glut in the marketplace and force prices down and that will have a negative effect as we go forward over the next ten years or so.”

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About Peter White, executive director of FBAA:

Peter White has been in the finance industry since 1979, and the executive director of FBAA for seven years. He was involved in the set up of the first RAMS home loans sales office, was the former associate director of AIDC Ltd Investment Bank and the first CEO of Wizard Home Loans.

Mortgage brokers are already putting a heavy emphasis on the living expenses of borrowers when matching them with the most suitable loans for their financial circumstances, according to the nation’s peak body representing finance brokers, the Finance Brokers Association of Australia (FBAA).

The comments are in response to a call from the chairman of the Australian Prudential Regulation Authority (APRA), who wants the finance industry to be more diligent about getting realistic living expense estimates from borrowers.

“While that’s a very sensible call by chairman Wayne Byers, the main function of finance and mortgage brokers is to make absolutely sure they find products that are not unsuitable for borrowers,” said FBAA executive director Peter White.

“Brokers have been following those guidelines for some time to ensure that borrowers don’t get into debt over their heads and have the financial means to service their loans.”

Mr White said that with brokers now writing around 56 per cent of mortgages, it is more important than ever for them to remain focused on doing the right thing by borrowers.

“As I have been saying for a while, Australia has had low interest rates for a very long time and with that trend likely to come to an end sooner rather than later, it is essential that borrowers are matched with products that are right for them.

“In order to do that, brokers must be mindful of the potential for some borrowers to understate their living expenses.”

Borrowers are being advised to reassess their mortgages in light of predictions by many financial experts that the official interest rate is unlikely to change in the near future.

The call is from the peak body representing Australia’s finance brokers, which says borrowers should ensure their loan has not become unsuitable for their needs.

“One of the best things people can do is ensure the interest rate structure on their loan is suitable for their future,” said Finance Brokers Association of Australia (FBAA) executive director Peter White.

He said borrowers should consider their short to medium term plans in order to judge whether a fixed or variable rate loan is preferable.

“If they have no immediate plans to change their borrowing needs for renovations, extensions or the like for the next two to three years, fixing their interest rate for that period may be a good option with many fixed rates sitting at below four per cent,” he added.

“By doing that, as rates rise, borrowers will be in front.

“On the other hand, a part-fixed part-variable rate loan structure may be a good option if people want to hedge their bets on all fronts.

“The key is to wait for the best time to do it and that may be another six to ten months down the track.”

Mr White suggests with all the uncertainties in the home loan marketplace, borrowers should look to mortgage association professionals such as an FBAA member to guide them through the interest rate mire.

Global investment bank UBS is being reckless with its analysis of so-called ‘liar loans’ because it is based on implied presumptions, according to the Finance Brokers Association of Australia (FBAA).

UBS claims mortgages loaned on incorrect information provided by borrowers amount to $500bn, but FBAA executive director Peter White said that’s based on their interpretation of their own research and he is calling on them to prove their data.

“I want to see their data analysis,” said Mr White. “We need to see the questions they asked participants and we need to know how much and under what conditions they were paid.

“UBS must prove there is no steering of answers or influences to produce outcomes which are not factual or fair or commercially sound.”

Mr White also questions the validity of the data.

“They’re not a lender in the home loan space, so there needs to be clear transparency of their supposed results.

“This is not their data and not data from a bank/lender, so the question must be asked as to the accuracy and integrity of the research, which is fundamentally divorced of market broker and lender marketplace data.”

The Finance Brokers Association of Australia (FBAA) has welcomed news of increased scrutiny on the big banks and their behaviour when setting interest rates for mortgage products.

The Australian Financial Review reported on Wednesday that the Australian Competition & Consumer Commission (ACCC) had issued compulsory information notices to the big banks to gather information on how they set interest rates on their residential mortgage products.

The FBAA, the leading professional body for finance brokers in Australia, called for the review back in June and executive director Peter White is pleased that the ACCC has taken notice and decided to act.

“We applaud the ACCC for eventually doing its job in this regard, as we realised months ago there was a real possibility of the big banks passing the cost of the new bank levy on to its customers,” Mr White said.

Recent interest rate movement has seen some investor and interest only loans increase by as much as 66 basis points, some since the federal budget was handed down in May, but there has been little explanation as to why.

“Some of these rate increases are extraordinary and the Australian public deserves to know what’s going on,” Mr White said.

“The emphasis now is on the banks to justify their decisions to increase rates and maintain consumer trust in the bank sector.”

A call to scrap all mortgage broker commissions has been criticised by the Finance Brokers Association of Australia (FBAA) which says consumer groups making the suggestion have no regard for the competitive position and incredible value proposition that brokers bring to home loan borrowers.

FBAA executive director Peter White said it is very concerning when misinformation is disseminated by those claiming to be consumer advocates, but who don’t tell the truth.

“Home loan brokers and the non-bank sector have created a highly competitive and progressive lending environment that didn’t exist before,” he said.

“If interest rate margins of the 1980s still existed today without brokers, home loan interest rates would be around 7.5 per cent not 4 per cent.

“Competition created by brokers has fostered the opportunity for brokers to do work and home visits for loan interviews, create redraw facilities and lines of credit and offset accounts all of which never existed before.”

He said the consumer groups believe current commission structures should be replaced by a flat-fee model and while that sounds fine in part, the reality is it would cause interest rates to rise.

“The average loan amount nationally is around $450,000 and the average commission is 0.60 per cent, meaning a flat fee commercially would be around the $2,700 mark.

“In regional markets where loan sizes are smaller, a loan of $200,000 would in the current structures pay around $1,200 and not $2,700 in a flat fee model and lenders would never wear such a loss.”

Mr White said the groups also claim that mortgage brokers are giving advice, yet that’s not the case.

“Under the regulations that govern mortgage brokers, they give credit assistance and are doing work on behalf of the lender, which is why the lender pays them a commission and it has no bearing on the interest rate the borrower pays.

“If you don’t use a broker you go to a bank which still has the administration costs for the loan, so it’s cheaper for the bank to originate a loan through a broker than at a branch.”

He said the suggestion to abolish trail commissions is an ignorant position to take by what should be a responsible group of consumer advocates.

“If they knew their subject matter, they would know that trail commission is paid to brokers to offset costs of providing ongoing customer service and to manage the borrower’s ongoing and variable lending needs as required under the national consumer credit protection regulations.

“There is absolutely no evidence to suggest trail incomes harm competition.”

Reports that ASIC’s remuneration review is an opportunity for finance and mortgage brokers to self-regulate have been strongly criticised as being way off the mark by the Finance Brokers Association of Australia (FBAA).

Executive director Peter White said the industry is regulated by ASIC, and as such, can never truly self-regulate.

“For true self-regulation to exist, one needs to formulate the rules, write them and then police them without external influence,” he said.

“In the case of ASIC’s REM review, the industry can have input and offer guidance on possible measures and outcomes, but the decision is made by the minister through Treasury and ASIC then polices those outcomes.”

Mr White said industry bodies, such as the FBAA, provide some self-regulation, pointing out that the association has had internal dispute resolution processes available to members for well over ten years.

He revealed the FBAA process has just been authorised by the ACCC as a formal disciplinary tribunal that has greater powers and reaches across all finance segments, to “ensure the right outcomes are achieved from any dispute against a member”.

However, this tribunal doesn’t replace other dispute resolution processes, the ombudsman, courts, or ASIC’s powers, and “it certainly does not constitute true self-regulation”.

“It is also important during this ASIC and Treasury REM consultation process that over eagerness doesn’t cause us to throw the baby out with the bath water.”

As part of the association’s response to Report 516 (the REM Review) in relation to Proposal 1 (improving the standard commission model), the FBAA has taken a strong stance in not supporting any changes to commission structures that injure the broking profession and deliver no consumer benefits.

“As an industry association, we need to be extremely careful how things impact commercial arrangements, as we cannot make such considerations on behalf of our members.

“However, as we know, ASIC believes there needs to be some tweaking so we need to carefully tread this path without rushing into making poor decisions that impact people’s lives.”

Media Contacts: Brian Lowe – 0434 791 084 // Lyall Mercer – 0413 749 830