The hidden problem in the $6.2 billion mortgage broker industry
Exclusive: Mortgage brokers don’t always offer customers the cheapest home loans and some don’t have a valid excuse for it, new research has claimed.
But brokers insist this doesn’t tell the full story when it comes to providing the best service for their clients in the $6.2 billion industry.
The mortgage brokers industry in Australia is worth $6.2 billion. Dion Georgopoulos
A fresh review by the Australian Securities and Investments Commission (ASIC) discovered that, in 20 per cent of cases probed by the watchdog, brokers did not recommend the lowest-cost loan option to homebuyers.
While there can be reasons for recommending a more expensive loan, ASIC noted there were instances where “brokers did not have clear evidence to support those recommendations”.
Mortgage brokers are legally required to act in their client’s best interest and put those interests ahead of their own under the National Consumer Credit Protection Act.
The review examined 13 credit licenses which make up eight large mortgage broker aggregator groups.
These groups are responsible for an estimated two thirds of all broker representatives in the country.
Brokers told nine.com.au this is simply not proof that bad apples are operating in their industry.
Smart Choice Brokers’ Senior Finance Broker Jake Little said the lowest-cost option is “not always in the best interests of the customer”.
“Sometimes brokers may not articulate their rationale in enough detail to satisfy ASIC,” Little said.
“The reality is that new-to-industry brokers and very inexperienced brokers that do not have reliable mentors can sometimes fail to explain their rationale for offering a higher price in their statement of credit assistance.
“Their obligation is to be very thorough, but sometimes they may not treat compliance as seriously as they should, particularly if they are under time pressure and do not review their work closely enough.”
Little said some “unscrupulous operators” may be duping clients.
It’s unlikely a broker would take this risk for such little reward, he added.
ASIC discovered that 20 per cent of brokers did not recommend the lowest-cost loan option to homebuyers. Jim Rice
“I am confident these brokers are in a minority based on the dealings I have with my peers,” Little said.
“Our reputation and livelihoods are too important to take this sort of risk.“
It’s no surprise to fellow broker Dustin McMahon that the home loans with the lowest repayments aren’t always on the table.
The managing director of The Finance Nest said the best loan offer can be “subjective”.
“Do you go into your local electrical retailer and buy the cheapest TV?” he said.
“There’s a difference between recommending a more expensive loan for a clear client benefit and recommending one without being able to explain why.
“Clients deserve both a sound recommendation and a clear explanation.”
McMahon debunked the myth that loans are chosen by brokers based on commission.
Commission is generally between 0.65 to 0.70 per cent of the loan amount.
“For us, commission never influences the recommendation. In our experience, there is very little variation in commission between lenders,” McMahon said.
“Regardless of the amount, a broker’s remuneration must never take priority over the client’s interests.”
ASIC’s review discovered that customer complaints about the best interests duty (BID) took longer to resolve than other complaints.
“Our review found complaints being missed, withdrawn without being fully investigated, or delayed,” ASIC Commissioner Alan Kirkland said.
“When complaints are not handled properly, confidence in the complaints process can be undermined.”
McMahon said that, if in doubt, home loan customers should arrive armed with questions.
Any broker worth their salt will be able to expertly explain why a loan is or isn’t in someone’s best interests.
“If the explanation isn’t clear, ask more questions or seek a second opinion,” he added.
“A good broker should welcome those questions and help you feel informed and confident about your home loan.”
‘Dumb it down in the easiest way possible’
New homebuyer Keely McKenna put all her trust in her mortgage broker.
The Brisbane woman, 22, and her partner bought a property this year and needed a broker who acted transparently and honestly.
They found the “perfect” person to help buy their first home.
Keely McKenna and her partner purchased a property in Brisbane this year using a mortgage broker. Keely McKenna
“I didn’t want someone who was going to skim over the nitty-gritty details, I thought that was really important,” McKenna said.
“He was always so responsive to all the questions that we had, which felt like it was really easy to trust him.”
McKenna said young homebuyers find navigating the property market overwhelming.
It can be like learning a new language. It’s easy to get lost in the numbers, she said.
“The housing industry is really new to us. Like we don’t really get loans, we don’t touch credit cards. We don’t do anything like that,” she added.
“So I was like, ‘Please dumb it down in the easiest way possible’.”
More than 80 per cent of all home loans in Australia are provided through mortgage brokers.
ASIC said the review should prompt the mortgage broking industry to strengthen “how it demonstrates that home loan recommendations are in their customers’ best interests”.
“Consumers place significant trust in mortgage brokers,” Kirkland added.
“Strong supervision, effective monitoring and robust complaints handling help ensure that trust is well-placed.”
The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.
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