Bank wanted mortgage broking fees transferred to customers

A big four bank almost overhauled its broker remuneration model so that the cost of mortgage broking services would be transferred to the customer, the royal commission heard. Here’s how to prevent that from happening.

The Royal Commission recently revealed that back in 2017 the Commonwealth Bank planned to replace commissions paid to mortgage brokers with a flat fee, but baulked at the last minute.

CBA’s CEO Matt Comyn told the royal commission that CBA believed the most attractive model was one where “customers would pay a broker”.

The move would have saved CBA $197 million over five years if everyone in the market moved with them.

However, without regulator intervention to drive an industry wide move to this model, CBA feared they’d be left hung out to dry by the other big three banks.

“We came to a view that nobody will follow and we will suffer material degradation in volume,” Comyn said.

Not only would this model be a major disadvantage to consumers going forward, it would reduce a new broker’s revenue on an average loan to about a third of what it currently is.

Basically, the only real winner would have been the big banks.

Not the customers. Not the mortgage brokers.

The banks.

Some interesting stats

Here are some interesting statistics from Deloitte Access Economics that may explain why CBA was looking to limit the growth in the mortgage broking market:

– Over the past three decades brokers have contributed to the fall in net interest margin for banks of over 3% points. This saves you $300,000 on a $500,000 30-year home loan (based on an interest rate fall from 7% to 4% pa).

– 27.9% of residential loans are arranged through lenders other than the big four banks and their affiliates, providing competition and more choice for consumers.

– On average, mortgage brokers have 34 lenders on their panel and use 10. It’s this additional choice that adds competition in the market. The only winners from less competition are the big banks.

– 56% of residential loans were settled by mortgage brokers in the September quarter in 2017. This is up from 44% since 2012.

– 70% of a broker’s business comes directly or indirectly from existing customers, demonstrating high levels of customer satisfaction.

– 9 out of 10 customers are satisfied with the services provided by mortgage brokers.

It’s still a live issue

Basically, the only reason CBA didn’t pull the trigger on the move was because it was worried that if it did, the other lenders wouldn’t join them. Instead, they’d swoop in and steal their business.

However, if the regulator enforced a flat fee model, then all the lenders would have to get onboard.

That’s exactly what could happen if it becomes a royal commission recommendation, which is a possibility considering the extensive line of questioning from the royal commission’s counsel assisting, Rowena Orr.

How can you help?

The best way is to contact your local MP to let them know you’re happy with the mortgage broking service currently being provided.

By letting your local Federal Member of Parliament know this you can help prevent the cost of our future services being transferred from the bank over to you – and you’ll also be showing your support for us.

Additionally, head over to the The Adviser and Momentum Intelligence survey to share your experience with us. It’s anonymous and only takes two minutes to complete.

If you’d like any more information on this issue don’t hesitate to get in touch. We’d love to speak to you more about it.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Buy now, pay later schemes putting young shoppers at debt risk

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One in six customers who use payment methods such as Afterpay and Zip Pay run into financial strife – and ASIC is putting the ‘buy now, pay later’ industry under the spotlight.

ASIC’s first review of this evolving market finds that buy now pay later arrangements are having a negative impact on spending habits, especially those of younger consumers.

Six buy now pay later providers were reviewed, including Afterpay, zipPay, Certegy Ezi-Pay, Oxipay, BrightePay, and Openpay.

Over-commitment

ASIC identifies a real risk that some buy now pay later arrangements increase the amount of debt held by consumers and contribute to financial over-commitment.

It finds that 1 in 6 users (16%) believe they have experienced at least one type of negative financial impact due to a buy now pay later arrangement.

In fact, 7% delay paying other bills, 5% borrow money from family or friends, and 4% get a loan or cash advance on their credit card to pay the money back.

Those who do pay it off on time? Well, 1 in 4 users (23%) use a credit card to make their repayments anyway.

Users are young and earn less

Interestingly, 60% of buy now pay later users are aged between 18 and 34 years old and more than 2 in 5 users (44%) have an annual income of less than $40,000.

Prices sometimes inflated

Each provider in ASIC’s review contractually prevents merchants from charging consumers higher prices for using a buy now pay later arrangement.

However, ASIC has received anecdotal evidence that some merchants may be charging consumers significantly higher prices for using a buy now pay later arrangement for purchases over $2,000, or where the price is less transparent and ‘negotiable’ (eg. solar power products, services).

More expensive, spontaneous purchases

Buy now pay later arrangements result in 81% of consumers buying a more expensive item than they would have otherwise been able to afford.

Seven in 10 users are now also making more spontaneous purchases.

As a result, as of 30 June 2018, there was a whopping $903 million in outstanding buy now pay later balances across Australia. That’s $37 for every man, woman and child in Australia.

Potentially unfair contracts

Finally, in ASIC’s view, each buy now pay later provider includes terms within their standard contracts that are potentially unfair to consumers.

They also provide a very broad range of circumstances under which a consumer will be regarded to be in ‘default’ and hold consumers liable for unauthorised transactions, even when the provider knows or suspects the transaction may be unauthorised.

What next?

Given the potential risks to consumers, ASIC has supported extending proposed product intervention powers to all credit facilities regulated under the ASIC Act.

Basically, this would provide ASIC with a much more flexible tool kit to address emerging products and services such as buy now pay later arrangements.

It could also ensure ASIC can take appropriate action where significant consumer detriment is identified.

What you can do in the meantime, however, is only shop for items you can afford through better budgeting so that your important debts, such as your mortgage, don’t become stressed from a flow-on effect.

That’s something we can help you with.

And if you do really want something that you need to take out a loan to purchase an item such as a car then give us a call.

There are a number of reputable and responsible lenders to choose from that operate under the National Consumer Credit Protection Act, unlike buy now pay later providers.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Property round up: NSW overhauls stamp duty, NAB increases rates

There’s been a couple of fairly big property-related announcements recently, including a stamp duty overhaul in NSW and NAB increasing interest rates. Let’s break down what they could mean for you.

NSW stamp duty overhaul

First, let’s start with the good.

The NSW Government recently announced it will peg stamp duty to the rate of inflation. It’s the first state to do so after leaving its current system largely unchanged for over 30 years.

In a nutshell, the seven different price brackets that determine how much stamp duty NSW homebuyers pay will be adjusted to the Consumer Price Index (CPI).

Why does this matter?

Well, over the past 15 years the average rate of stamp duty in NSW rose from 3.37 per cent to 4.05 per cent.

At the same time, the median house price in Sydney rose from around $400,000 to $1 million.

The NSW government says the changes, which are effective from July 1, will ensure the tax on housing does not continue to grow.

The immediate savings will be “modest” – think in the ballpark of $500 by 2021 – but they will become more substantial for home buyers over the long run.

A couple of quick examples to break it down

If stamp duty brackets had been indexed to CPI 15 years ago, for example, the amount payable on a $500,000 home would be around $2000 lower today.

Meanwhile, the amount payable on a $1.5 million home would be around $6400 lower.

“Whether you are a first homebuyer, a downsizer or upgrading to the family home you will ultimately benefit as a result of this reform,” says NSW Treasurer Dominic Perrottet.

So will other states follow suit? Well, that remains to be seen, but this is a great first step.

NAB Increases mortgage rates for new borrowers

Ok, now time for the not-so-good news.

The National Australia Bank (NAB) recently announced it’s slashing the discount offered to new borrowers from 0.48% to 0.30%.

That effectively translates to a rate of 3.87%, up from 3.69%.

The new rate applies to all new principal and interest loan customers. The good news is that NAB has committed to keeping its standard variable rate on hold for existing customers for as long as is reasonably possible.

What next?

NAB’s move comes just two months after Westpac, CBA and ANZ raised their own interest rates.

At the time, NAB said it wouldn’t raise rates so that it could rebuild trust with customers following the Royal Commission report into mortgage lending practices.

The big question is: will the other banks follow suit once again and increase rates further? That remains to be seen, but the message is clear: interest rates are going up.

Actions you can take to combat rising interest rates include shopping around, locking in a rate, or consolidating your debts.

If you’d like help putting any of the above strategies into place, get in touch with us today. We’d love to help out.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

6 Christmas tips to help you save this silly season

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Most of us roll our eyes when we start seeing shopping centres spruik Christmas merchandise in November. While it’s important not to get caught up in the festivities too early, now’s actually a great time to start prepping to ensure a budget blow-out doesn’t derail your mortgage repayments over the silly season.

The best bit? By following some of the below tips, you can turn the retailers’ early mind games against them and save money instead!

1. Buy food ahead of time

Christmas time tends to lead to a lot of socialising. Even if you aren’t the one catering, requests to bring a plate can add up over time.

Make a point of keeping an eye out for food and drinks specials ahead of time and buy items like boxes of chocolates, long life snacks and drinks when they are on special. That will make it much easier to stretch the food budget over Christmas.

2. Opt for Secret Santas

For people who have a large family or friendship circle, Christmas can lead to a long list of presents to buy. Many people prefer not to get extra clutter for their kids, so suggest a Secret Santa arrangement instead of buying for every person.

This way you can put more thought into each gift as well as not creating more stress.

3. Homemade wrapping paper

If the end of term results in your kids bringing home sheets of artwork, why not recycle these and use them for wrapping paper for the extended family?

Not only does this mean that the kids get to see their artwork being passed on to loved ones, but it also saves you money on buying wrapping paper that will be in the bin by Christmas morning.

4. Shift the focus

Rather than dwelling on social media posts of the perfect Christmas morning with matching pyjamas, shift your focus to the true meaning of Christmas: helping others who are less fortunate.

For instance, instead of getting new books for Christmas Eve story time you could choose books from the library and make a donation to charity that helps literacy in at-need communities.

5. Keep a track of your spending

With a large percentage of Australians overspending at Christmas (and feeling guilty about it), it’s important to keep a budget for Christmas and any associated events – like holidays – over that time.

By following a budget, and starting now, you can spread out your spending – $200 a week over five weeks is much better than $1000 in the week before Christmas.

6. A final few tips

– Create a list of who you need to buy for and brainstorm present ideas before you go shopping.

– Make your own gifts.

– Buy online when sales specials are on. This can help you avoid pressure from sales staff and impulse purchases.

– If hosting a Christmas day event, organise it early so attendees can help out with the food and drinks.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Under the microscope: your micro-transactions

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When it comes to paying off your mortgage, many of us are in the dark as to where we should be making significant savings. A good place to start? Cutting down on ‘micro-transactions’.

The lure of micro-transactions – purchases that are low in cost and trivial in nature – can be a real obstacle for those trying to pay off their mortgage faster.

Indeed, while the cost of these transactions may seem infinitesimal in the grand scheme of things, they can add up to the equivalent price of that trip you always wanted to take, or the sophisticated new piece of technology you’re desperate to try.

Of course, there are a myriad of ways to pay of a mortgage sooner, including refinancing or downsizing.

For many of us, however, addressing our penchant for micro-transactions is surprisingly effective. Here are a few examples.

Takeaway coffee and bottled water

Picking up a hot cup of takeaway coffee in the morning is an irresistible slice of luxury for many of today’s busy workers.

However, while a cup only costs a few dollars, transactions can easily add up for caffeine addicts.

One $4 cup of coffee costs you $28 per week. Over one month that’s almost $120. Over a year it’s almost $1500.

Consider switching to home-brewed coffee in a flask. As well as saving you a lot of money, you’ll be saving the environment by avoiding disposable cups. The same can be said for bottled water.

The gym

Having a gym membership can make you feel virtuous and healthy, but how often do you actually make use of it?

If the answer is “not as much as I should” then you need to reconsider your membership.

The daily cost of a gym membership is about the same as a cup of coffee. That’s another $1500 each year right there.

The great thing about exercise is that it can be done for free – throw on some jogging shoes and think about all the cash you’re saving!

Household bills

There are plenty of possible ways you could be overpaying on household bills.

Many people still pay for a landline, for example, but the rise of the mobile has made domestic phones almost redundant.

And do you really need high speed NBN? Most of the Telcos are offering BYO mobile phone plans with endless data for about $60-$70 a month – with unlimited calls and texts.

Once you go past a 40GB cap your internet speed is reduced to 1.5Mbps – which is still fast enough to stream Netflix in standard definition, browse the web, and listen to music.

The best bit? Your smartphone can double as a hotspot modem to your other devices.

Other common ways of overspending on household bills include failing to set a thermostat correctly, leaving electrical items on standby, using inefficient light bulbs or failing to obtain accurate meter readings.

Dig a little deeper into where your money is going on household bills and you could save a significant sum – enough to reduce your mortgage significantly each year.

Get in touch

If you’d like to find out other ways you can save on your mortgage – get in touch – we’d love to help out.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.