The global credit crunch has rolled around to Australia’s mortgage broking industry with Westpac Banking Corporation moving to cut brokers’ commissions to offset its own rising costs.

Westpac’s decision to slash the upfront and trailing commissions on mortgages brokers that refer to it has fuelled speculation Australia’s other major lenders will inevitably follow.

But it prompted an angry response from the big brokers, including Aussie Home Loans and listed company Mortgage Choice Ltd, which say Westpac’s move was blunt and one-sided.

The news had an immediate impact on Mortgage Choice stock which nose-dived 26.07 per cent today, pushing the share price 36.5 cents lower to $1.035.

Westpac has cut its upfront commission by 20 basis points to 0.50 per cent and the annual trailing commission, which is paid over the life of the home loan, by 10 basis points to 0.15 per cent.

The current commissions - 0.70 per cent upfront and 0.25 per cent trailing - are worth around $1800 and $750 respectively on an average $300,000 loan.

After the cuts, to be rolled out progressively over the next three months, the commissions will drop to $1200 upfront and $450 for the yearly trailing commission on a $300,000 loan.

A Westpac spokeswoman said the decision was driven by the bank’s own higher wholesale funding costs, given there was no certainty when the funding pressure would ease.

Mortgage Choice chief executive Paul Lahiff said the cuts would not impact the broker’s bottom line in the current financial year, nor would there have been a material impact on the fiscal 2008 results even if the cuts had been implemented last year.

“That in large part is because while Westpac is a top-floor bank in Australia, it’s not a top-floor lender as far as Mortgage Choice is concerned,” he said.

“It would probably fall into the second half of the top ten of our lenders.

Mr Lahiff said Mortgage Choice had tried to negotiate a better outcome with Westpac on the cuts, but “hit a brick wall”.

“There was just no willingness to engage in meaningful discussion or debate.”

Aussie Home Loans boss John Symond was more outspoken in his criticism but acknowledged other big lenders were likely to cut broker commissions.

But he also expected the cuts to be far less drastic in return for improvements from large mortgage brokers such as Aussie Home Loans.

“I am critical that Westpac appear to just haphazardly come out and just decide they’ll drop commissions by a certain per cent.

“They more or less made a decision: like it or lump it.

“On that basis they probably are going to miss out on a lot of new mortgage business because there’ll be better offerings from the majority of the other providers.”

National Australia Bank Ltd will haven spoken to 2000 brokers around the country by May about the higher cost of funds and moves to improve quality and advice offered by brokers.

The higher cost of funds alone would result in the bank “having a look at the commissions in terms of what it costs you”, NAB Broker regional general manager Matt Lawler said.

“But it doesn’t mean to say you would just slice. You can reshape the way it’s paid and when it’s paid to actually benefit the client, to benefit the shareholders and to benefit the broker over time.”

In a grim worst case scenario for Mortgage Choice, ABN Amro equities analysts found if all the major lenders together were to immediately cut broker commissions, its earnings could decrease by 50 per cent.

“In reality, the earnings impact is likely to transition over a number of years as higher-margin loans roll off and are replaced by new lower-margin loans,” they said in a note to clients today.

Both Commonwealth Bank of Australia and ANZ Banking Group Ltd said they had no plans currently to change their broker commissions.

AAP