Australia’s leading mortgage broking groups, Australian Finance Group’s (ASX: AFG) has released a response to the Final Report of Royal Commission which released on 4 February 2019. Due to the Royal commission’s recommendation on the broker’s remuneration in which it proposed to stop the trail commissions from lenders to mortgage brokers for any new loan, the share price of the company declined by 29.134% as on 5 February 2019.
After the report was released, the Australian Government highlighted the contribution the mortgage broking sector makes in reducing the borrowing costs and widening the choice for consumers. After the Royal Commission's recommendations, the Government has proposed to end the payment of trail commissions from lenders to mortgage brokers for any new loans from 1 July 2020 onwards.
The Treasurer Josh Frydenberg has said that the Australian Government had not endorsed the Royal Commission’s recommendation for upfront payment of mortgage broking fees by the consumer to be introduced immediately, instead the Government has suggested a three-year review period to examine the impact of any changes to competition in the sector.
The company has welcomed the Government’s announcement of a set timeframe for the industry to demonstrate the clear benefits the mortgage broking industry provides to the consumers so that information can be shared, and the industry can define its effectiveness across the market.
While commenting on the Royal Commission’s report, AFG’s CEO Mr. David Bailey has said that both the Government and Opposition has highlighted that any changes to the mortgage sector should be introduced in a phased and considered manner. He further told that at a time when navigating the complexity of the Australian mortgage market is more difficult than ever for consumers, if the proposed changes are not handled properly, they could place assistance out of reach for some customers. Those hardest hit will be low-income earners, and the changes could deliver pricing power and higher margins back to the major banks.
The company was disappointed by the emphasis the Royal Commission placed on comments by the CBA about mortgage broker remuneration models as the company believes that the bank’s positioning was clearly self-serving, and CBA's comments were designed to win market share from the smaller banks.
The Government has outlined an extensive consultation process which involves the Council of Financial Regulators and the Australian Competition and Consumer (ACCC) to review the impact of the recommendations and the implications for competition. The company is planning to work with industry bodies to make sure that any recommendations are implemented in a way that improves results for customers and changes work in the best interests of customers.
In the past six months, the share price of the company decreased by 16.99 percent as on 4 February 2019. AFG’s shares traded at $0.900 with a market capitalization of circa $272.81 million as on 5 February 2019.
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