The U-turn comes after an intense lobbying effort from Australian mortgage brokers, who have defended the current remuneration model in the wake of the Royal Commission and recommendations from the final Hayne report.
The Hayne report proposed a ban on lender-to-broker commission, trail, and called for the introduction of a fee-for-service model.
Australian Treasurer Josh Frydenberg said the government has not taken a trail ban off the table, but will look at it in three years. The review will look at the impact of removing trail, and the feasibility of keeping it.
Frydenberg told reporters the government had taken the decision amid concerns about competition.
The Treasurer made a number of comments in defence of the mortgage advice sector, indicating the government is softening its stance. It had previously backed nearly of all Hayne's recommendations.
Frydenberg said mortgage advisers play a "critical role" in the economy, and said the government stands "side by side" with brokers. Frydenberg said he wants to see "more mortgage brokers, not less".
The Aussie government's change in tune comes after the country's brokers, led by adviser trade body the MFAA, launched a multi-million dollar advertising campaign against Hayne's proposals.
The future of other forms of commission in Australia remains unclear. The government is expected to look at a fee-for-service model but is unlikely to implement one.
Political parties are debating the future of mortgage broker commission. The Australian Labor Party wants lenders pay an upfront, fixed fee of 1.1% to mortgage advisers, having previously backed a consumer-pays model.
Frydenberg's comments indicate Australian advisers are winning the fight against sweeping reforms. The developments are likely to welcomed in the New Zealand market, with the big four banks all-Australian owned.