The Royal Commission Could Trigger Big Changes In Home Loans

home loans

After 68 days of hearings and over 10,000 public subcommissions, The Royal Commission released its final report at the beginning of February.

This report is based on the findings of dodgy practices by banks, insurance, and superannuation companies operating in Australia.

Commissioner Kenneth Hayne made 76 recommendations in the final report and the federal government said they would act on all of them.

How will this report affect the housing market in Australia? This is what most consumers want to know.

This article provides information on how the final report of the Royal Commission could trigger big changes in home loans across Australia.

Mortgage Brokers Targeted

The Commission spent a long time looking at various issues of the lending industry in Australia.

They were of the view that lenders and advisors should always have the best interests of their consumers in mind when they sell or recommend a financial product.

The operations of mortgage brokers came under the radar of the commission. The Royal Commission found massive gaps in the operations of mortgage brokers in the country.

When a consumer plans to buy a house and goes to a mortgage broker for assistance, there is no rule to say that the broker should act in the best interest of the consumer.

Brokers Not Acting On Behalf Of Customers

The broker gets his commission from the bank and not the consumer. Hence, the broker will act with the best interest of the bank in their mind when recommending a mortgage to the consumer.

They may recommend a loan with a higher interest since the broker gets his payment from the bank.

There are many instances where the broker would try to sell a loan worth more than what the consumer originally expected.

It’s not uncommon for brokers to recommend bigger loans to their consumers to get a better commission from the bank.

The commission thinks that this practice needs to stop with immediate effect.

Mortgage brokers are getting rich by selling larger home loans to millions of consumers across Australia.

Going to a bank to get a housing loan is an outdated practice in Australia. These days, over 50% of home loans come from mortgage brokers in the country.

New Rules For Mortgage Brokers

The commission plans to change this practice by implementing rules that prevent brokers from collecting trailing commissions from banks.

This could cut down on the mortgage broker’s pay.

The commission thinks that the commissions received by the brokers from banks is tantamount to “conflicted remuneration.”

Broker’s are loyal to the banks and not the consumers since they get the commissions from the banks.

The commission recommends that consumers should pay the commission to the broker and not the bank.

So, how will these recommendations impact the housing industry in Australia?

Impact On The Housing Industry


Experts believe that the recommendations of the commission can seriously impact the housing industry in Australia.

Consumers would cut out the middleman and go directly to the bank for mortgage loans. A bank may have a limited range of loans to offer the consumer.

The bank may save on commissions since they don’t have to pay the mortgage broker. However, they have to hire new staff to deal with the expansion of loan applications.

Consumers will end up with smaller loans by directly approaching the bank since there is no broker to entice them to get a bigger loan.

All this can eventually have a considerable effect the housing market in Australia.

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Additional Reading:

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Case For Borrowing Money Instead

8 Mistakes You Should Avoid When You Get A Small Business Loan