Representatives of the New Zealand Mortgage Brokers Association and leading broking firms met representatives of the four major mortgage banks on Friday and the NZMBA confirmed yesterday that commissions were under review.
NZMBA chief executive Megan Salt says the banks had acknowledged that the current commission structure was no longer viable and that the economics of the model were under serious review. Mortgage margins had been substantially reduced and the trend would continue to be downwards as lenders responded to market conditions.
Salt added that banks felt that “brokers selling on price have contributed to this”.
Banks are thought to be preparing to cut commissions within six weeks. This will be the second time in less than two years that brokers have seen their incomes slashed. Banks stopped paying annual trail commissions last year, leaving brokers to survive on upfront commissions, generally set about 0.8% of the value of a loan.
There have been suggestions that commissions could soon be virtually halved.
The banks’ cutback comes as brokers are marking a milestone in the development of their industry with confirmation by NZMBA research that they arranged 37% of new homeloans last year.
Salt said the strength of the broking industry as a distribution channel for banks put it in a strong position to defend itself.
Some brokers charge fees to clients but few in the industry believe that consumers will be willing to pay fees as a matter of course.
NZMBA chairman Geoff Bawden said: “The industry is in its relative infancy. It will go through several changes. Some may include the way we are remunerated.”
However he said the market was not ready for widespread fee-charging. “In some respects charging a fee in the marketplace would be the ultimate acceptance of the value brokers add but I don’t think this market is in a position to accept that.
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