Big Brokers Put Percentage Card On Table

Sydney Morning Herald

Monday April 28, 2008

Jacob Saulwick and Clancy Yeates

AS MAJOR banks start to wind back the commissions they pay to mortgage brokers, larger brokers see a glimmer of light in the hope they may receive a better deal than their smaller rivals.

Westpac shocked brokers a fortnight ago when it said it would slash commissions brokers receive for arranging new loans by 40 per cent. Other major banks, grappling with higher funding costs because of the credit crisis, are set to follow Westpac's lead.

But the founder and managing director of Aussie Home Loans, John Symond, said he was confident larger brokers would be able to cut better deals with banks because of the volume of business they provide.

Mr Symond, who has been locked in discussion with Westpac's rivals since the initial move to cut commissions was announced, said banks were likely to take a "more scientific" approach to commissions than Westpac's across-the-board cuts.

"The bigger organisations may well end up securing a 10 to 15 per cent cut instead of losing a third," Mr Symond said.

If other banks follow Westpac's lead, the relationship between brokers and banks would probably deteriorate, causing brokers to avoid the major banks where possible.

Westpac's cut sparked a backlash from mortgage brokers, which have a hand in more than 40 per cent of new home loans.

The chief executive at mortgage brokers eChoice, Michael Peters, said that if the loan deals were similar for customers, brokers would look at redirecting loans away from banks.

Mr Peters said he had not heard that other banks were making similar cuts to Westpac's. "The bongo drums are playing but we are hearing nothing directly," he said.

The managing director of Choice Aggregation Services, Michael Russell, said mortgage brokers would continue to seek the most competitive deals in the event of further cuts, through bank and non-bank lenders.

However, the impact of rising credit costs has been particularly dire for non-bank lenders, forcing many to close their books.

The credit crunch has improved banks' dominance in lending, with their share of new housing loans in February reaching the highest level in 13 years.

In contrast, the business model of many non-bank lenders is under threat, because the smaller players are struggling to source funds at rates competitive with the major banks, according to the chief executive of the Australian Securitisation Forum, Greg Medcraft.

The Commonwealth Bank, St George and NAB have made clear their intention to reduce brokers' share of the loans business, by announcing reviews into the commissions they pay.

"The combined pressures of the last eight months and our commitment to remain a strong industry partner have led us to review the profitability of the [broking] business, in line with our responsibilities to our shareholders," a Commonwealth Bank spokesman said.