Credit Crunch Stretching to Australia?

The global credit crunch has rolled around to Australia’s mortgage brokering industry with Westpac moving to cut brokers’ commissions to offset its own rising costs. Westpac’s decision to slash the upfront and trailing commissions on mortgages that brokers refer to it has fueled speculation that Australia’s other major lenders will inevitably follow.  But it prompted an angry response from the big brokers, including Aussie Home Loans and listed company Mortgage Choice, which said Westpac’s move was blunt and one-sided. The news had an immediate impact on Mortgage Choice stock, which nosedived 26.07 per cent yesterday, pushing the share price 36.5c lower to $1.035. Westpac has cut its upfront commission by 20 basis points to 0.5 per cent and the annual trailing commission, which is paid over the life of the home loan, by 10 basis points to 0.15 per cent.The current commissions — 0.7 per cent upfront and 0.25 per cent trailing– are worth around $1800 and $750 respectively on an average $300,000 loan. After the cuts, to be rolled out over the next three months, the commissions will drop to $1200 upfront and $450 for the yearly trailing commission on a $300,000 loan.  Westpac spokeswoman said the decision was driven by the bank’s own higher wholesale funding costs, given there was no certainty when the funding pressure would ease.

Mortgage Choice chief executive Paul Lahiff said the cuts would not affect the brokers’ bottom line in the current financial year, nor would there have been a material impact on the fiscal 2008 results even if the cuts had been implemented last year. Mr Lahiff said Mortgage Choice had tried to negotiate a better outcome with Westpac on the cuts, but “hit a brick wall”. Aussie Home Loans boss John Symond was more outspoken in his criticism but acknowledged other big lenders were likely to cut broker commissions. But he also expected the cuts to be far less drastic in return for improvements from large mortgage brokers such as Aussie Home Loans. “I’m critical that Westpac appear to just haphazardly come out and just decide they’ll drop commissions by a certain per cent. They more or less made a decision: like it or lump it.”

National Australia Bank will have to speak to 2000 brokers around the country by May about the higher cost of funds and moves to improve quality and advice offered by brokers. Both Commonwealth Bank and ANZ said they had no current plans to change their broker commissions.