The National Australia Bank NAB has become the third major financial institution

The National Australia Bank has become the third major financial institution to announce cuts to the commissions it pays to mortgage brokers that sell its products.

NAB will replace current flat up-front and trailing commission structures with a performance-based regime. Starting from November, that will mean an up-front fee of between 50 and 65 basis points instead of the previous standard 65 basis points commission, and trailing commissions that don’t reach a top commission level of 35% until the sixth year of the loan. According to NAB Broker regional general manager Matt Lawler, there are still opportunities for brokers despite the cut.

“Whilst commission on mortgages is coming down, we believe that total revenue for brokers will increase over time if brokers adapt and incorporate broader solutions for their clients. NAB Broker will continue to support this through the provision of products and services to meet these needs,” Lawler says.

But the announcement, which follows similar moves by Westpac and St George earlier this year, will further ratchet up the pressure on mortgage brokers, many of whom are already feeling the squeeze due to a decline in consumer demand for home loans. Andrew Hunter, general manager of mortgage broker Peach Home Loans, says he is disappointed by NAB’s decision to cut commissions.

“We are not seeing declining revenue yet, but certainly the level of inquiry has dropped significantly,” Hunter says. “While the commission cuts haven’t kicked in yet we are looking at the impact it will have on profitability.” Hunter says he is suspicious of bank claims that increased wholesale lending prices caused by the credit squeeze are the reason for the cuts.

“It appears to me they are being opportunistic,” Hunter says. “I don’t accept they are taking a hit on margins, they just see this as an opportunity to move on commissions. They’ve spoken about it for many years and now they’re jumping at the chance.”But NAB’s move hasn’t met with the same widespread outrage provoked by previous commission cuts.

Warren O’Rourke, corporate affairs manager with national mortgage broker franchise Mortgage Choice, says the NAB move is a better outcome for brokers than the unilateral commission cut announced by Westpac in April this year. “Because of market conditions, various lenders have reviewing broker commissions and this is just the next one to go. But I guess the important thing is there is the opportunity there to maximise revenues and we feel we will be able to meet the metrics on qualifications and performance they have set,” O’Rourke says.

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