Clawback will likely continue to be a problem despite cashback offers from some major lenders ending this week, according to some senior mortgage brokers.
Anthony Waldron (pictured above left), CEO Mortgage Choice, said with some customers refinancing multiple times a year, brokers have often been left with “nothing to show” for the hours spent on processing the loans.
“Brokers as business owners rightly feel their income is being affected at no fault of their own,” Waldron said. “As an industry, we need to work on a solution that helps protect brokers when a customer’s circumstances change.”
The contentious issue has left some brokers feeling like their financial loss was not considered after a near-record number of lenders extended cashback incentives earlier this year.
But while Westpac, NAB, and ING are ending their cashback deals from this Saturday, July 1, and CBA having already ended its offer in May, 26 lenders are still offering cash incentives for homebuyers at the time of writing, according to Rate City.
These cashback offers – which currently go up to $10,000 – are an alluring temptation for some homebuyers, with many looking to refinance after rolling off low interest fixed rate loans.
And while only six lenders are offering cash incentives for new loans, the majority are targeting this group of refinancers.
Adele Andrews (pictured above second from left), director of Australian Property Home Loans, said cashback offers were a “double-edged sword” that skewed the market dangerously.
“They are a great sweetener if everything else is right and the client is going to be better off long term, but unfortunately they have become a reason to move and a distraction from what we, as brokers, are trying to do in order to improve the position overall,” said Andrews.
“It is not uncommon for a client to come to you and ask for a refinance – based on who is offering the best cashback – the exact wrong reason to do it.”
The impact on brokers
Small businesses dominate the mortgage landscape, with 62% of broker offices being made up of sole or dual operators, according to the MFAA’s latest IIS report.
With that, many brokers experience much of the same pains of other small business owners such as an increase in business running costs, professional indemnity insurance, and outsourcing services.
Add in industry-specific costs such as rising aggregator fees and net of offset transactions, and it’s easy to see why lenders clawing back commissions could be damaging to a brokerage’s bottom line.
Andrews said she had been very fortunate with only one clawback, but “it hurt a lot”.
“They just feel so terribly unfair when you have moved heaven and earth to get the right outcome for someone, worked late, worked a weekend and did whatever it takes only to have it all ripped from under your feet,” she said.
An FBAA report last year revealed that the average annual clawback value per annum to a broker had risen from $10,229 in 2018 to $15,077 in 2021, being a 47.4% increase. In the same period, lender-causing cashback incentives increased by 59.1%.
That was at a time in mid-2021 where only 24 lenders were offering cashbacks between $1,000 and $4,000, according to Rate City.
However, not all brokers have been severely impacted by clawbacks.
Aaron Bell (pictured above second from right), director of Home Loan Village, said the situation had meant that some clients preferred to refinance more often than they otherwise would have, and he had been subject to more clawbacks over the last two years as a result.
“That being said, it hasn’t been a huge overall impact and my general thought process is to think through the client’s best interest rather than ever complain to a client about the way we are paid … as I’m sure the vast majority of brokers would not complain to their clients either,” said Bell.
Loan Link broker Alma Zubovic (pictured above right) said she had been in the fortunate situation where no clawbacks had occurred but acknowledges that if things keep going the way they are, it may not remain that way.
“All I can do is maintain frequent contact with my client base and maintain the service that I’ve provided thus far,” said Zubovic.
Lessons for brokers
While cashbacks may still be sticking around a little longer, some brokers remain optimistic about a cashback-free future.
Bell said it was a just phase over a period of time that meant the economics of broking were slightly different, but now the industry was moving into a new time.
He said that in the new environment, “rates and ongoing service is going to be key”.
“It’s very important right now for brokers to understand those key service indicators of lenders over at least over a medium period,” Bell said. “It’s going to be about who is better at repricing current lending, who makes this process easier and who is more easily able to match their current best in market rates.”
Andrews said that now more and more lenders had pulled out of the cashback market, it would create room for brokers to educate and ensure that clients were in a truly better position – and not just stuck somewhere with a “band aid fix” until the cashback runs out.
But Andrews noted that without the backup of cash to mitigate loss through cashbacks, the implications on one’s broking business could be “very problematic”.
“Honestly, the world would be better off without cashbacks and clawbacks as far as I am concerned. Keep the industry fair and pure,” she said.