Labor would also require that commissions are only paid on the amount of money drawn down in a loan — a change many banks have already committed to making.
The policy is a stark change from Labor’s initial «in principle» support for the royal commission’s recommendation that all commissions be phased out and replaced with a fee paid by consumers.
‘Making the banks pay’
Claire O’Neil, shadow minister for financial services, also confirmed Labor’s plan to raise the limit on bank compensation for victims to $2 million, including for non-financial losses such as to mental health. She vowed the industry will pay the bill.
«We are making the banks pay for this scheme because it is the banks that have done the wrong thing,» she said.
Brokers and smaller banks have been lobbying against that proposed shake-up to commissions for the past month, warning it would force mortgage brokers out of business, harming smaller banks that depend on brokers for distributing loans.
Mr Bowen on Friday argued the cap on commissions would keep banks from steering which loans were recommended by brokers, and the policy would deal with brokers arranging bigger loans than needed.
«We do want to see conflicted remuneration taken out of mortgage broking, but we do recognise that up-front commissions will play a role to take the financial pressure off customers,» he said.
Mortgage brokers welcomed the change, which had been flagged on Thursday, sending the share prices of Mortgage Choice and wholesale broker AFG sharply higher.
The rally continued on Friday, with AFG shares up another 8 per cent to $1.28 and Mortgage Choice shares up 6 per cent to 81c.
Mike Felton, chief executive of the Mortgage Finance Association of Australia, said the policy would keep brokers viable, therefore protecting competition and access to credit.
«Retention of commissions that reflect the value that mortgage brokers generate for their clients will help protect good consumer outcomes, while sparing Australian borrowers a new multi-thousand-dollar fee every time they wish to apply for a loan or try to refinance their mortgage,» he said.
Choice chief executive Alan Kirkland, a critic of commissions, said the Labor backdown was a «temporary reprieve» for brokers, in part because the industry had run a «ferocious» lobbying campaign.
«Ultimately, we are going to need to see the recommendations of the royal commission implemented,» Mr Kirkland said. «This announcement shows that it’s going to take longer to get there.»
Earlier, AFG posted a 2.2 per cent increase in profit to $16.7 million, as the slowing property market and tighter lending conditions dampened performance.
Residential loan settlements fell 7 per cent to $17.2 billion as loan approvals slowed across the industry. Settlements in the company’s high-margin AFG Home Loans business grew, however, by 6 per cent to $1.73 billion.
«We continue to build a strong, sustainable business despite challenging market conditions,» said AFG chief executive David Bailey.
The company said its diversified business — it also has its own line of securitised loans — gave it «flexibility» to adapt to new remuneration models.
It will pay a dividend of 4.7c a share, the same as last year. AFG said reported return on equity was 35 per cent.
Clancy Yeates is a business reporter.