ANZ is cutting upfront commission payments to mortgage brokers recommending loans to potentially risky clients with low deposits in its latest move to tighten prudential standards.
It is the first time a major lender has financially incentivised brokers, who act as an intermediary between borrowers and clients, to encourage clients to save more and borrow less.
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Brokers with clients borrowing 80 per cent or more of a property's value will receive an upfront commission of 62.5 basis points, a reduction of about 2.5 basis points.
The reduction will be waived for borrowers with a minimum deposit of 20 per cent of the property's value.
The trailer fee, which is an annual service fee, will remain at 0.15 per cent.
Australian and New Zealand Banking Group is the most reliant of the big four on mortgage brokers to distribute its products in the aggressive competition for customers. The move follows consultation with mortgage aggregators, which are dealer groups providing services for brokers.
Simone Tilley, ANZ head of national broker distribution, is calling on mortgage brokers to embrace the tougher prudential regime by "leaning into change with an offensive game, opposed to a defensive one".
Ms Tilley said in a letter to mortgage brokers: "If lenders ask brokers for [client] files, checking for things such as customer needs analysis/how this has best been evidenced, what we need from brokers and their extended teams is a growth mindset, so that we can tier up together."
The percentage of ANZ's mortgage book attributable to brokers rose from about 51 per cent to about 56 per cent during the second half of last year, which makes it the most reliant of the big four banks on brokers to distribute mortgage products, according to analysis by Morgan Stanley Research.
Commonwealth Bank of Australia, which traditionally was the biggest user of brokers, is increasingly turning to proprietary services through its extensive national branch network.
Brokers' share of CBA's mortgage flows fell from 46 per cent to 43 per cent during the second half, according to Morgan Stanley Research.
CBA, the nation's largest mortgage lender, has also put all new broker accreditations on hold until it beds down new minimum educational qualifications and experience writing loans.
Brokers' share of mortgage flows fell from 42 to 34 per cent at National Australia Bank and 46 to 43 per cent at Westpac.
Other lenders, such as Westpac, are putting pressure on brokers to ensure prudential lending by making brokers declare their client's repayment strategy is "reasonable and plausible" and that there are no inconsistencies between the borrowers' stated objectives and the loan product.
Smaller banks and non-authorised deposit-taking institutions rely more heavily on brokers because they have fewer branches and distribution alternatives.
Broker commissions vary between lenders and brokers, with top performers receiving more.
Upfront commissions are typically about 65 basis points, according to Mortgage Choice, the nation's third-largest mortgage broker. Trailing commissions are about 18 to 19 basis points.
But banks pay higher commissions to top providers.
Lenders conduct regular stress tests of loan portfolios to meet management objectives and regulatory requirements to ensure portfolio losses under stressed conditions are manageable and within their capital base.