Borrowers will pay more if commission system changes, say brokers

Irish borrowers will be hit with higher mortgage charges and hurt by decreased competition if the Central Bank bans commission payments for mortgage brokers, a group of brokers has warned.

In a meeting with the Department of Finance last year, the Association of Expert Mortgage Advisers (AEMA) told officials that a ban on payments from banks to mortgage brokers would cause a "reduction in the number of intermediaries . . . a decrease in competition, and an increase in mortgage rates".

The AEMA represents 28 mortgage brokers, including many of the largest in the State, and its members account for about half the mortgages written with the assistance of a broker.

Under the proposals, which the Central Bank published as a consultation paper over a year ago, brokers could face a ban on earning commission from the banks to whom they bring mortgage business.

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Under the existing model, the mortgage borrower does not pay a fee to the broker, but this may change if the Central Bank changes its rules.

According to a record of the meeting between the AEMA and officials in the Department of Finance, the brokers said that they believed “consumers will not pay fees and therefore if brokers are not allowed receive commission as payment from lenders, then intermediaries will struggle to get customers”.

The brokers’ association also argued that the ban on inducements was “no longer necessary due to the fact that the macro-prudential lending rules are preventing borrowers from over-extending themselves and consumers are reluctant to borrow due to the memories of the financial crash”.

Speaking to The Irish Times, AEMA chairman Trevor Grant said that at the moment, brokers act as a sort of "price regulator" because they quote all available offers to a customer. "If brokers couldn't be remunerated, then you wouldn't have intermediaries, you just have lenders. Customers just go to the bank, and by default it could well lead to higher prices," he said.

The note of the meeting shows that the officials told the AEMA delegation that while the Central Bank may consult the department about the regulatory changes around inducement payments, it would ultimately be a matter for the bank to decide upon.