Investors and property owners are not the only ones to benefit from rising house prices across Australia, with commissions paid to mortgage brokers totalling more than $1bn in the year to August.
According to the latest Mortgage Industry Model from Digital Finance Analytics (DFA), growing broker market share, rising loan values and tweaks to commission structures resulted in total commissions paid to brokers overt the 12-month period pushing past $1.1bn.
DFA principal Martin North told NZ Adviser's sister site that while the total commission figure is high, it isn’t overly surprising.
“I’ve been tracking it for the last 10-12 years through the modelling that I do and it was quite high pre-GFC and then it went off the boil a little,” North told Australian Broker.
“To my mind it’s quite a big number, but it’s in-line with the volumes that we’ve seen and in-line with the fact that commissions are related to the size of the loan. As house prices go up, the size of loans go up, so it’s not really surprising,” he told Australian Broker.
The DFA research comes as broker remuneration remains a contentious issue and North hopes people are able to look past the $1.1bn figure and see why an increase has occurred.
“It’s important that people don’t just grab the headline figure without looking at the drivers,” he said.
“Some of the banks have tweaked their commissions to be a little bit more generous, but the main factor is to do with that commission is a percentage of the loan value, therefore as the loan value goes up, commission goes up.
“It’s also clear that the bank’s strategy is to use brokers more. If you look at the majors then they’ve definitely increased their penetration through the broker channel.”
North likened the current commission environment in Australia to that of the UK before the industry there moved to a fee-based system, rather than commissions. While he doesn’t believe that will occur in Australia, he does believe the industry has been somewhat responsible for the negative perception that currently exists around commissions.
“To me it’s more about disclosure, rather than the remuneration model," hesaid.
“Consumers are very unclear about what commissions are paid, they’re unclear about trail, they’re unclear about soft commissions, they’re unclear about discounts and bonuses and target commissions and all those things.
“The critical thing is that consumers should go into dealings with a broker understanding the basis under which advice is being provided and understanding how commissions are paid. Transparency is the crucial issue.”
This article is from our sister site, Australian Broker by Phil McCarroll.