Brokers see better bank relations after St George commission move

Mortgage brokers have interpreted a move by St George Bank to reverse its decision to withdraw trail commissions as a sign that lenders are looking to strengthen relationships with the distribution channel.

The bank has decided to reintroduce a 15-basis-point, year-one trail commission.

St George has also increased its upfront component from 50 basis points to 65 basis points, as long as at least 80% of a broker's loan applications are accepted by the bank.

In September 2010, the bank announced it would strip its 0.15% first year trail commission payment altogether, in a move designed to reward elite brokers with higher upfront payments.

The backflip on trail commission has been welcomed by Aussie Home Loans and Mortgage Choice – two of the biggest players in the broker space.

Aussie executive director James Symond told The Australian he had seen a “noticeable difference” in the way lenders interacted with brokers in the last six months. He expects other lenders to look at their credit criteria and commission structure in the current flat market.

Mortgage Choice CEO Michael Russell said the move was pleasing.

"The message from the bank is, we really value the relationship we have with brokers and understand the pain of losing first-year trails," he says.

The changes will see St George approaching the rate it paid brokers prior to the GFC.

The major banks asserted their dominance of the market and the collapse of the non-bank sector to slash upfront broker commissions and in most cases, remove the trail component.

St George, a subsidiary of Westpac, has been almost entirely reliant on mortgage brokers to grow its mortgage book outside its NSW market.

Westpac was the first major bank to reduce broker commissions, in April 2008, with the other major lenders following suit soon after.

Mortgage brokers have been battered by increasing headwinds since the GFC, with the sector undergoing massive consolidation, a reduction in commissions and the introduction of a national licensing scheme.

Despite this, brokers remain a key distribution channel for banks, accounting for up to 40% of their mortgage book originations.

Figures put out by the Market Intelligence Strategy Centre in July revealed the number of mortgage broking firms operating in Australia had contracted by 26% in the year to March 2011.

The figures showed there were 119 broker aggregators and firms, with the total value of business flowing through to those brokers dropping to $11.6 billion due to poor housing construction conditions and a weak economy.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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