Australians are turning to mortgage brokers to find the best possible home loans.
But a new report from regulator ASIC questions whether we’re getting our money’s worth.
The ASIC report found that 49 per cent of customers using mortgage brokers wound up with a loan from their existing bank, and brokers weren’t doing enough to explain why they recommended certain loans.
One in 10 borrowers is struggling to make repayments within 12 months of taking on their mortgage, the report also found.
Those findings suggest “it’s very unlikely” customers are getting the best loan, Choice chief executive Alan Kirkland said, a worry given 44 per cent of new home loans come from brokers.
For first-home buyers, that percentage is higher at 53 per cent.
“Mortgage broking can and must be better,” Mr Kirkland said.
“Australians, particularly younger, less experienced and less wealthy borrowers, are relying on mortgage brokers to get them a fair deal. They should be able to get advice they can trust.”
Anthony Justice, chief executive of online mortgage broker and active home loan manager Uno Home Loans, told The New Daily the research supported the introduction of a ‘best interests duty’ for brokers – slated to be introduced before the end of the year.
This duty would require brokers to find the most competitive loan on the market, and not simply one that ‘is not unsuitable’.
“The standards would obviously be higher under a best interests duty; it requires brokers and lenders to take into account a lot more detail and a lot more of the customer’s circumstances,” he said.
“It changes the whole way the industry thinks about this and about the outcomes for consumers, which is currently a pretty low bar.”
Broker pay also a worry
Consumer group Financial Rights Legal Centre (FRLC) said the report also highlighted a need for broker commission payments to be overhauled.
Currently, most mortgage brokers receive commissions from the lenders they recommend, and the size of that commission can vary between lenders and different loan amounts.
While most consumers are aware commissions are being paid, ASIC’s report found it wasn’t always clear that commission payments varied in size.
FRLC director of casework Alexandra Kelly said this arrangement “warps” the way brokers choose loans for their customers.
“The bigger the loans, the more mortgage brokers make. This leaves many borrowers with loans that are not the best fit for them.”
Choice concerns ‘simply don’t exist’
Peter White, chief executive of mortgage broking industry association Finance Brokers Association of Australia, rejected Choice’s claims, saying it “highlighted their disturbing lack of real understanding” on mortgage broking.
“I thought Choice was meant to provide an independent and unbiased assessment, yet here they are again making extreme, unsubstantiated claims,” he said.
“They are creating issues that simply don’t exist.”
Mr White said the industry was “really pleased” with the results of ASIC’s research and welcomed a shift to a best interests duty.
“Like any industry, we are always looking at how we can possibly improve,” he said.