Brokers' commissions are an emotive issue, and the recent decision by two lenders to cut their commission rates on mortgages has ruffled a few feathers in the industry. What effect, if any, will this development have on consumers?

This month Ulster Bank cut its commission from 1 per cent of the value of new mortgages introduced by brokers to 0.5 per cent. Just before Christmas, Permanent TSB (PTSB), the banking arm of Irish Life & Permanent, signalled that it would cut commissions in January 2009.

In addition, from July onwards PTSB will increase the timeframe during which it can claw back commissions (for example, if the borrower pays off their mortgage in full) from three years to five years.

This is the last thing mortgage brokers want to hear as they are already experiencing a decline in business due to a cooling housing market and they fear that other lenders may follow suit and slash their commission rates as well.

However, brokers seem to be split as to whether this development will affect individuals seeking home loans.

"We have requested a meeting with the Financial Regulator, because it's not a development that's in the interest of consumers," says Jack Fitzpatrick, chairman of the Professional Insurance Brokers' Association.

However, Paul Short of the Irish Mortgage Advisers' Federation says that at the moment, it remains an issue for brokers more so than for consumers. "From the consumer point of view, it's really a bit irrelevant," he says.

Won't customers though be pushed towards lenders offering the juiciest commissions, while banks with cut-price commissions will be glossed over? Short says this won't be the case as, under the Consumer Protection Act, brokers must be able to prove their recommendations are in the best interest of the client.

"Ultimately a 'reasons why' letter is deliverable to the customer," he says. "The Financial Regulator is the last person anybody wants to fall foul of."

Fitzpatrick insists that if similar commission cuts are introduced across the board, the consumer will suffer.

"If brokers' commissions are cut in half they'll have to consider charging fees for mortgage advice, so the client will have to pay for it," he argues. In addition, some brokers may decide not to stay in the mortgage market. "If that happens it restricts the client's choice," he says.

Those who aren't willing to pay an up-front fee will have to spend a huge amount of time applying to different lenders and will be "pushed back into dealing directly with people who are not acting in their best interests", he predicts. "If you go into a PTSB branch, all they're going to do is sell you a PTSB mortgage."

Fitzpatrick says the Professional Insurance Brokers' Association will monitor any further developments in this area very carefully to ensure that they are not anti-competitive from the consumer's point of view.