More commission cuts likely

Comment: ANZ's discussion document proposing to cut upfront commissions paid to mortgage brokers won't be the last.

Friday, April 27th 2007, 8:36AM

Most of the banks will move to cut commissions to improve their margins. Word has it that National Bank will do something, maybe as early as next week, and Westpac isn't far away suggesting a similar move, but perhaps a bigger cut. The unknown is what ASB Bank is thinking.

Added to this it seems the aggression in the BNZ Unbeatable campaign has been removed and replaced by TotalMoney.

Likewise it would be no surprise to see BNZ re-enter the broker market. Again word has it that such a move maybe a little closer than many expect.

A view expressed previously is that with a change in leadership at the bank there will also be a change in strategy. Good Returns and the NZ Mortgage Mag have requested interviews with the bank's new boss, however this has been declined each time. We note though interviews have been granted with some other media.

The changes mark a real watershed for the mortgage industry. The change should be no surprise to brokers as there has been talk for ages that commissions will be cut at some stage.

My view is that once one bank moves the others will follow quickly. Seeing ANZ take the lead isn't a surprise either as it has tried to, from time to time lead the market in rate changes.

One of the debates in this issue is around margins. The following two graphs are the interpretations of margins by a number of players. The first, supplied by Approved Mortgage Brokers suggests margins have remained relatively constant over recent years. The graph is essentially comparing advertised two-year fixed rates with the wholesale swap rates.

The second graph comes from ANZ's discussion document. This is the bank's real margin. Perhaps the key issue to remember here is that many loans are written at less than the advertised rate and also that there are other costs.

While the time scales vaary in each graph they do show different trends post 2004. I will let you make your own decision about which one is correct.

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