The recommendations by the Hayne Royal Commission this week are disappointing. In my opinion, they do not go far enough to make the banks responsible for short term decisions when dealing with their clients’ assets and liabilities.

There were many recommendations made by the commission, but those affecting the financing of real estate include:

• The current scrutiny of clients’ income and expenses will persist. So, don’t expect faster mortgage approvals anytime soon.
• The remuneration of mortgage brokers will be reduced by 10% initially. There will be further cuts of 20-30% within three years.

Carving a chunk from the incomes of mortgage brokers destroys the viability of this vital borrowing channel. Worse, this measure significantly inhibits mortgage competition, as it potentially gives the four major banks back their monopoly. While ANZ, NAB, Commonwealth Bank, and Westpac shareholders enjoyed a bounce the morning after the tabling of the recommendations, less mortgage competition doesn’t bode well for consumers.

Consumers say no to mortgage fees

Several reviews by ASIC, the ABA, and the Productivity Commission have found that brokers drive competition, particularly for rural and regional customers.

In truth, if the recommendation for a broker-only consumer fee-for-service situation eventuates, brokers and smaller lenders will be unable to compete on a level playing field with the big banks and their expansive branch networks.

The Mortgage Finance Association (MFA) recently commissioned an independent research company to ask consumers would they be willing to pay a fee for their mortgage. Predictably, 96.5% of customers stated they would not make a payment to a broker of $2,000, while the majority indicated a reluctance to pay anything at all.

Dutch courage

The Hayne recommendations relating to mortgage broker remuneration originated from a model introduced by the Netherlands Government. A vital aspect of the Dutch model links to a customer’s ability to pay the fee. In the Netherlands, mortgage interest and establishment costs are tax deductible, including fees charged for advice about the loan. These expenses are deductible over the life of the loan. Of course, in Australia, consumers can’t claim their application fee as a tax deduction.

Also, looming large over the royal commission’s recommendations is the Federal Election set for May. Quick off the mark, the Labor Opposition committed to implementing every Hayne Royal Commission recommendation. Therefore, we might see these recommendations implemented sooner than currently predicted.

The digital banking revolution provides some light

Thankfully there is some light at the end of the gloomy tunnel. The rise of digital banks promises to disrupt the financial services landscape. The digital banks threaten the banks with faster mortgage approvals and superior customer outcomes, including fee transparency.

Volt Bank, for example, earned a full banking licence. Volt is the first digital bank in Australia to earn its full banking stripes, while its competitor Xinja recently received a Restricted Banking Licence. Xinia expects to receive a full banking licence in six months, while another five to six digital banks are in the pipeline.

With disruption comes opportunity. I expect technology to play an integral part in changing the current banking oligopoly in Australia and improving the lot of banking consumers with mortgages.