The MFAA addressed key broker concerns at its national Looking Ahead PD event, covering topics like clawbacks, cashbacks, regional bank closures, and the impact of refinancing and payroll tax.
With around 70% of home loans and 40% of business loans written by the third-party channel, MFAA CEO Anja Pannek (pictured above) spoke to the “pivotal role” brokers play in the lives of Australians, building trust and guiding them to make the right decisions.
“Trust coupled with the positive outcomes, or achieving your clients has put our industry in an incredibly strong position as we start 2024,” Pannek said.
“The strength of our industry is reflected in our growing market share, low complaints, and the recognition our industry has received from government.”
After touching on the state of the economy, Pannek addressed the association’s approach to advocacy, calling it a long game.
“It’s pretty rare there is an immediate tangible resolution on issues. That said, we have an outstanding track record here at the MFAA in achieving transformative outcomes for our members in the industry,” Pannek said.
“The cancellation of the 2022 broker remuneration review, for example, and our proactive and successful defense of the industry at the Royal Commission come to mind.”
Here are some of the top issues Pannek covered:
Clawbacks: MFAA calls for ‘equitable’ approach
With some in the industry likening it to modern slavery, perhaps no issue ignites the furore of brokers like broker clawbacks.
Pannek acknowledged its importance and called for a “more equitable approach to clawbacks” but stopped short of advocating for ruling them out completely.
“Clawbacks are an integral part of the remuneration structure, but we really want to see a fairer model,” Pannek said.
“What we need and what I encourage lenders to look at is a fairer clawback structure with a shorter timeframe. What would you describe as a linear declining approach as opposed to that very harsh nature of clawbacks in the market.”
Pannek said removing clawbacks completely would “require us to reopen not just clawbacks, but the entire remuneration model”.
“That would entail revisiting fronts and trail, which does present significant risks, especially given what we've faced very recently around regulatory scrutiny about the remuneration model.”
Cashbacks: end of the ‘frenzied’ mortgage wars
On a more positive note, Pannek welcomed the end of 2023’s “frenzied” mortgage wars, where lenders heavily competed for market share by introducing increasingly lucrative cashback offers.
At a time when the Australian market was facing record refinancing activity, cashbacks incentivised consumers to refinance multiple times in a short period.
This left some brokers with “nothing to show” for the hours spent on processing loans.
Pannek said in February last year, she was talking about the need for lenders to remove cashbacks.
“They had just gotten out of control. They caused confusion from what we saw and clearly did not make economic sense,” she said.
By July, “sense had prevailed”, with “opaque” cashbacks dissipating.
“Lenders shortly thereafter started to pull back on cashbacks, which I believe is hugely beneficial for industry,” Pannek said.
While cashbacks were a setback, Pannek was pleased with the way brokers handled high refinancing activity last year.
“Some 95% of you told us in our survey last year that you've had clients using a broker [for the] very first time coming to you to refinance,” she said. “This continues to translate through to broker market share increases.”
With hundreds of thousands of customers still on fixed-rate term loans that are due to expire this year, Pannek said borrowers will likely seek out expert advice in the challenging current environment.
“Overall, I see lending activity in 2024 remaining strong, however at more sustainable levels than what we saw in 2023.”
Borrowing capacity: 1% buffer on like-for-like refinances and discharge reform
In terms of other successes, Pannek said the MFAA has “got the government's attention” on the challenges brokers have been facing with refinancing clients.
“We shared with the government your concerns on discharges gathered through feedback on tables and surveys,” said Pannek, explaining that these engagements led to the government reinvigorating the Home Loan Price Inquiry from 2020.
“Government is now focused on how competition in the home loan market can be improved,” Pannek said. “This has given us a real opportunity to campaign directly not on just the discharge issues that you're facing but also on channel parity.”
One concern that many MFAA members raised with Pannek was about serviceability and borrowing capacity.
Banks must currently consider a 3% "buffer" interest rate on top of the actual rate when assessing how much borrowers can afford to repay. This buffer, imposed by the regulator (APRA), was meant to prepare borrowers for potential future interest rate hikes.
However, with interest rates potentially reaching their peak, some in the industry question the need for such a high buffer, arguing it unnecessarily restricts borrowing capacity.
This has left many borrowers in “mortgage prison”, unable to refinance to a different lender because of the high buffer rate.
Pannek said the MFAA would like to see further options for mortgage prisoners, “pathways for example”, to a 1% buffer on like-for-like refinances.
However, she also pointed out that many members have seen a more stable outlook and are “looking to buy now rather than wait”.
“Especially given we see continued sustained property price growth, for now, some of your clients will still be cautious,” Pannek said.
“If rates do start to come down over 2024, we see this as a huge benefit in terms of cost-of-living relief for mortgage holders and also for those stuck in mortgage prison as it gives them a chance to refinance – which is your chance to assist them.”
Payroll tax and regional branch closures: Advocacy continues
Another major focus for the MFAA, according to Pannek, was its advocacy against Revenue NSW’s proposal to implement retroactive payroll tax on aggregators.
In February 2023, Revenue NSW had alleged that aggregators are operating as the employer of their broker network and are therefore liable to pay payroll tax.
This could pose a significant threat to the industry and could lead to some aggregators closing their doors.
The MFAA’s longstanding position was that Revenue NSW had no legal basis to levy payroll tax on the industry and by March had secured a stop action.
“Participation in New South Wales and right across the country was absolutely pivotal in terms of achieving this outcome,” Pannek said.
“And when it comes to payroll tax, this is an issue that we remain focused on in 2024.”
Finally, Pannek touched on branch closures in regional and remote areas talking about how she appeared in a senate inquiry on the issue late last year.
“The message from the inquiry was that you brokers are filling the gap in bringing choice and competition to these communities and that lenders need to invest in systems and support you to keep doing that.”
