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National Bank to cut trail commissions

By Jenny Ruth

Wednesday 13th April 2005

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 Jenny Ruth
National Bank will be cutting its trail commissions paid to mortgage brokers from June, the bank confirmed today.

Its parent bank, ANZ Bank, is also reviewing its commission structure.

The move follows Westpac's decision last September to tighten its clawback conditions for loans that didn't stay on its books long, reduced trail commissions for the first five years a loan stays in force but increased trail commissions on loans which last longer than five years.

National wouldn't provide details but New Zealand Finance Holdings told the stock exchange that National bank told it that from June 1 it will be increasing upfront commissions from 0.55% to 0.75% of the loan value and will stop paying trail commissions altogether, currently 0.2% of the loan value a year.

Jeff Staniland at Mike Pero Mortgages, which broke the news this morning, also through a notice to the stock exchange, confirmed that his firm has received similar notice from National.

"It's a pretty fundamental change to the business because trails were to stop churn," Staniland says.

New Zealand Finance says the change will have minimal effect on its mortgage broking subsidiary which contributed 5.7% to the company's net profit in the year ended March and that National Bank trail revenue makesup only 0.002% of total group revenue.
"In August 2004, the National Bank discussed with brokers the effects of reduced interest margins on fixed interest rate loans," says National Bank spokesman Robert Reid.

"We have been able to incorporate the information we gained from that consultation, into our approach going forward. We are continuing to hold meetings with brokers, and it would not be appropriate to comment further until those meetings have concluded," he says.

Despite the move, National is still hoping to keep dealing with mortgage brokers.

"Brokers remain an important source of new business, and complement our branch and Mobile Mortgage Manager channels. Brokers have been a key part of our ongoing success in the home loan market. We look forward to continuing that relationship in the future," Reid says.

ANZ spokesman Craig Howie says his bank has also "been reviewing its position in light of an ongoing reduction in margins. We remain committed to comprehensive consultation with mortgage brokers before making any changes to our broker commissions. We also remain committed to the broker channel. We cannot comment further until we have completed the consultation with brokers."

Of the other major home lending banks, Bank of New Zealand doesn't deal with mortgage brokers while ASB Bank has never paid brokers trail commissions.

ASB head of retail banking and marketing Ross McEwan says its upfront commissions of 0.8% are already competitive. "It would be fair to say that the margins have thinned out over the last 24 months, but our view is that brokers are an important channel and some customers are showing a preference for using a broker. We're just keeping an eye on the market."

The New Zealand Mortgage Brokers Association says cutting or reducing trail commissions isn't in the long-term interests of the industry or the consumer. "It does not demonstrate a long-term commitment to the customer and fails to recognise the role the broker plays in the ongoing management and support of the client relationship," it says. It also expects National's decision will encourage churn.

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