Most borrowers have no idea how much commission is paid to brokers, survey claims

by Julia Corderoy03 Nov 2014
A new consumer survey has claimed eight out of 10 Australian mortgage consumers have no idea how much money is paid in commission to brokers, but an association head has questioned the survey's accuracy.

The survey – commissioned by mortgage contest website, flongle but prepared by a third party – surveyed more than 1,400 home owners from a random sample selection of mortgage holders across Australia. According to flongle’s founder, Michael Lee, the results highlight the disconnect between how the mortgage industry works and how Australians think it works.

“More than 2 billion in commission was paid to brokers in Australia last year, but clever marketing from the big brokers and industry associations tells borrowers that this commission doesn’t affect them, as it’s paid by the lender,” Lee said.

“Most importantly, the commissions paid by different lenders can vary greatly, and certain home loan products and features will generate more commission for brokers than others.”

But does commission vary greatly between each lender? Peter White, FBAA CEO says there can be variances, but in a competitive market place it isn’t significant.

“There are at times variances on commission, but it’s a competitive market and it is all about remaining competitive, so if you’re a million miles away from somebody else’s commission then you’re not going to be able to compete. 

“If your products are relatively the same and it’s suitable for the borrower, then the broker will probably go with the one that pays the most commission – so variances in commission aren’t too significant when lenders are trying to compete.”

Commission is very rarely a driver for brokers anyway, says White.

“I don’t believe it is commission at all which is the driver, it is the relationship with the lender through the BDM – it is the service the BDM gives and the approval time of loans. That is the biggest driver. 

“Basically, products and interest rates and commissions are all relatively the same, so it’s all about delivering service and having good relationships the that flow onto the client, so if something does go a little left of centre it is easily, readily and quickly take care of. Those things are the most important to brokers and their clients. So, in that light, commission becomes irrelevant to the borrower.”

Putting aside the fact commissions are irrelevant to the borrower, White also says that he finds it hard to believe that the survey is symptomatic of the market as a whole.

“The survey was only 1,400 people, which is a very small percentage of the borrowing market place. I know Michael Lee and I know he is on a good mission to try and help consumers, but I don’t think the survey is truly reflective of the whole marketplace.

“The vast percentage of the market – north of 50% – probably do understand about commission and how brokers are paid, because it is spoken about in the media so often. Also, the way the NCCP was positioned and put together was to ensure any conflict of interest was minimised by disclosing everything – everything is put out on the table for the borrower. Because of those disclosure laws, you mitigate that risk of conflict.”

Despite the fact it was revealed that 8 out of 10 Australian mortgage consumers have no idea how much money is paid in commission to brokers – giving rise to the age-old commission debate once again – the survey did also reveal that 65% of respondents said that commission wasn’t important because “it didn’t affect them” and 86% believe their broker was “on their side” and offered them unbiased advice.



  • by Brado 3/11/2014 9:04:39 AM

    I'm not sure what relevance that has... Most Australians wouldn't know how much an electrician charges per hour either, and it varies... So what!? Had the surveyed people all had a loan settle since the inception of NCCP AND used a mortgage broker to do that?

  • by Johno 3/11/2014 9:22:48 AM

    And most borrowers would have no idea how much the bank will earn off their direct loan either.

  • by Responsible Regional Credit Advisor 3/11/2014 10:08:22 AM

    What have we all cynically said about surveys.
    What do you want the survey to report/demonstrate?
    Then pose the right questions.
    Ask the right demographics who are highly unlikely to use (or use) the product or service you wish to discuss.