On 4 February 2019, the Royal Commission released its final report regarding the misconduct in the banking industry, in which it has recommended various recommendations and among them, there is a recommendation of a ban on trailing commissions on new loans from 1 July 2020. Due to this news, the Mortgage broking services provider, Mortgage Choice Limited’s (ASX: MOC) shares were down by 26.19 percent on ASX today (5 February 2019).
Mortgage Choice Limited has released its response to the Royal Commission today. While commenting on the Royal Commission’s recommendations, Mortgage Choice Limited’s CEO Susan Mitchell told that the recommendations regarding broker remuneration need to be thought through carefully by the decision makers. She further told that the proposed recommendation can have a large impact on the mortgage broking industry. Further, these proposed changes could impact the competition within the home lending sector which could ultimately result in major banks gaining more pricing power.
According to the Recommendation 1.3 of the Royal Commission Final Report with regards to the Mortgage broker remuneration, instead of the lender, the borrower should pay the fee to the mortgage broker for the services broker has provided in relation to the home lending.
While commenting on the Royal Commission’s recommendations, the Australian Government commented that it is going to proceed carefully with the recommendations regarding the mortgage broker remuneration. The government is going to make sure that these recommendations do not have any negative impact on consumers’ access to lenders and competition in the home lending market.
The Government has proposed to ban trailing commissions on new loans from 1 July 2020, while the trail on existing loans will remain unaffected and it has also proposed a further review of broker remuneration in conjunction with the Australian Competition and Consumer (ACCC) and the Council of Financial Regulators. According to the company, these changes which will require careful consideration to make sure that they do not have counterproductive consequences for the home loan market.
The Royal Commission has also provided its recommendations relating to financial advice, in particular, the removal of grandfathered commissions from 1 January 2021. According to the company, the impacts of the financial advice recommendations to the Mortgage Choice Financial Planning business are likely to be minimal as the company’s model has no reliance on grandfathered commissions.
Ms. Mitchell has said that Mortgage Choice is committed to working with industry policymakers to make sure that the consumers can have access to competitive pricing, choice and the expertise they have come to expect from their mortgage broker. She further added that the company is also committed to supporting the small businesses across Australia that make up the mortgage broking industry and supporting the vital role that they play.
In the past six months, the share price of the company decreased by 36.56% as on 4 February 2019. MOC’s shares traded at $$0.775 with a market capitalization of circa $131.25 million as on 5 February 2019 (AEST 3:25 PM).
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