Brokers brace for cuts in mortgage fees

The mortgage broking industry is bracing itself for cuts to the commissions banks pay for bringing them home loan customers.

In Australia, ANZ and Commonwealth Bank of Australia (CBA), ASB's parent, cut brokers' commissions during the past week. New Zealand's biggest bank, ANZ National Bank, signalled earlier this month it is likely to do the same.

Chief operating officer Steven Fyfe said yesterday banks' margins on home loans had fallen by a third in the past five years but there had been no correlating fall in brokers' commissions.

Meanwhile, Westpac recently started paying brokers less upfront but offering more for tying customers into Westpac loans for longer periods of time. ASB is watching developments.

Banks get about a third of their residential mortgage business through brokers.

Jeff Staniland, chief executive of listed mortgage broker Mike Pero, said yesterday he was in ongoing dialogue with the banks.

However, Staniland said if Kiwi banks mimicked the cuts made in Australia, it would probably not have a "material" effect on Mike Pero.

"My opinion is that commissions are higher in Australia than they are here generally," Staniland said.

He estimated upfront fees averaged 0.8 per cent of total loan values in Australia with trail payments, the amount paid to brokers for each year a loan stays on the bank's books, at 0.3 per cent.

Here, they average 0.6 per cent and 0.25 per cent respectively.

"There may be bigger margins there to attack than there are here," Staniland said.

CBA cut its upfront payments from between 0.6 per cent and 0.7 per cent to 0.55 per cent. ANZ cut its trail commissions, which vary from 0.2 per cent to 0.3 per cent, by 0.05 per cent.

Staniland said mortgage broking was a "growth industry that's starting to mature".

Shares in Mike Pero have fallen 29 per cent since the company's May 24 initial public offering. Issued at $1, they closed at 94c on May 24. After reaching a high of 97c in June, they were worth 70c yesterday.

Staniland said fears of a slowdown in the property market had impacted on Mike Pero's share price.

"All we can do really is deliver on earnings and show that it's a good business model," he said.