Recent cashback incentives are benefitting borrowers and driving record refinancing as MFAA research shows. Clawbacks have increased 30% since 2020 – and 60% are thanks to a competitive surge in lender cashback offers – costing brokers $15,077 a year on average.

Mortgage refinancing has already reached a record high in 2023, and around a quarter of loans are expected to change hands this year. For brokers handling the refinancing of a loan they last placed less than two years ago, commission clawbacks could be an unwelcomed side-effect.

The Federal Government banned lender exit fees in 2011, in part to encourage borrowers to shop around. Many lenders simply charged the broker instead – ‘clawing back’ a proportion of the upfront commission on the loan.

But not all lenders take this approach.

“Assetline Capital has never imposed clawbacks with any of our products – from Short-Term Capital through to Horizon Mortgages,” explains Royden D’Vaz, National Head of Sales and Distribution.

“We believe brokers deserve to be fairly remunerated for all the work they put into the original loan. They can’t claw that time back – and if their client has a change in circumstances, their broker shouldn’t be penalised.”

Research from the FBAA shows clawbacks have increased 30% since 2020 – and 60% are thanks to a competitive surge in lender cashback offers. While a cash incentive may provide a short-term benefit (in some cases, making as much as $20,000 back on their home loan) it can distract the borrower from the best-suited mortgage product.

With two of the major banks announcing they will be pulling their cashback offers from the market in the coming weeks, this ‘distraction factor’ for borrowers may soon become a thing of the past. 

Under pressure

The FBAA, which is preparing a submission to government this year advocating for the removal of clawbacks, estimates they will cost brokers $15,077 a year on average – almost 50% higher than in 2018.

“Clawbacks can put broker cash flow under enormous short-term pressure, because it’s an unpredictable cost,” says D’Vaz. This lack of income certainty can limit their opportunities to grow.

With the average home loan now just 37 months, clawbacks can also impact trial commissions – especially if the client turns to another broker, not just another bank.

“Client retention will become an increasingly significant pressure point for brokers in the near future,” observes D’Vaz. “If you’re not talking with your clients about a home loan health check right now, there’s a chance your competitors could be – and that conversation is often a trigger to refinance.”

Supporting growth

D’Vaz says brokers are integral to Assetline Capital’s success, “so we believe in investing in broker’s success, not penalising them for doing their job,” he explains.

Instead of clawbacks, the non-bank lender charges an establishment fee on the loan to help cover the costs of that distribution channel. As this is absorbed into the loan amount, there is no cash flow pressure on either the borrower or the lender.

Assetline Capital also invests in additional support to give its brokers an advantage in the current market.

“We recently launched our Digital Broker Workshop Series, and our first session on SMSF lending had a very strong sign up and attendance rate. There’s a real appetite to learn new ways to grow their client book, and bringing in external experts like CPA and financial planner Michael Berman adds enormous value,” says D’Vaz.

He says SMSF loans are gaining traction at the moment, but as they are highly regulated, brokers need guidance to help set up the right structures.

“We’ve also developed a full suite of products that suit the needs of borrowers today. Brokers are often surprised by how easily we solve more complex client challenges,” he says. That could include approving Short-Term Capital for a mature age borrower with a solid exit strategy, Construction Capital with no servicing requirement, or accepting an accountant’s letter as proof of income for a Horizon Alt Doc mortgage.

Importantly, none of those products impose clawbacks – so once the deal is done, the broker can confidently plan revenue and cash flow.

“We want to make sure brokers are profitable and their businesses are sustainable.” says D’Vaz.

To learn more about Assetline Capital’s full suite of lending solutions, get in touch.