The Financial Rights Legal Centre (Financial Rights) has welcomed the Australian Securities and Investment Commission’s (ASIC’s) consumer research into the mortgage broking sector that provides further evidence that the mortgage broking sector needs reform.
The research – Looking for a mortgage: Consumer experiences and expectations in getting a home loan – found that consumers expected brokers to find them the ‘best’ loan.
“Consumers have a natural expectation that their broker will look after their best interests in obtaining a loan – but the current law does not require mortgage brokers to so and this in our experience is not always the case,” said Alexandra Kelly, Financial Rights’ Director of Casework. “All your mortgage broker has to do is ensure that the loan is ‘not unsuitable’ for you, not find the best loan for you.
“This report provides clear evidence that a best interests duty needs to be introduced as recommended by the Hayne Royal Commission as soon as possible.”
ASIC’s research found that those Australians using a mortgage broker were generally younger, had lower incomes, tended to be first home buyers and had less knowledge about home loans. The research also found that consumers had mixed understanding of how their mortgage broker is being paid.
“Mortgage brokers are paid by commissions from the banks which warps the incentive structure in in which loans are recommended” Kelly said. “The bigger the loans the more mortgage brokers make. This leaves many borrowers with loans that are not the best fit for them.”
The Royal Commissioner recommended removing conflicted remuneration by prohibiting lenders from paying trail commission to mortgage brokers in respect of new loans, and prohibiting lenders from paying other commissions to mortgage brokers. The government at first agreed to meet this recommendation and then back-flipped following intense lobbying from the mortgage broking sector announcing a review of trail commissions in three years.
“This research supports the case for government to reconsider its position and act now to reform the mortgage broking sector and remove conflicted commissions,” Kelly said. “If it does not do so more and more vulnerable home buyers will find themselves struggling in loans that don’t work for them.”
For further information contact Peter Vincent Communications and Campaigns Officer firstname.lastname@example.org on 02 8204 1372. Alexandra Kelly, Director of Casework, Financial Rights Legal Centre, is available for further comment.