Mortgage brokers will soon be required to act in the best interests of borrowers and not push them into taking out high interest loans when better deals are available.
That's according to the Australian Securities and Investment Commission (ASIC) which has started a four week consultation on draft guidance for new laws about the best interests duty (BID) for mortgage brokers.
The new requirements will kick into effect from 1 July.
It comes in response to one of the recommendations of the Royal Commission to ensure brokers act in the best interests of consumers and prioritise their interests when providing credit assistance.
ASIC Commissioner Sean Hughes said borrowers should feel confident their mortgage broker has their best interests at heart.
"The obligations properly align the interests of mortgage brokers with the interests and expectations of their clients - the borrowers," Mr Hughes said.
"Consumers should feel confident that their broker is offering the best loan for their circumstances and we expect that consumer outcomes will improve as a result of this reform."
The draft rules suggest that mortgage brokers should "consider products holistically to assess whether they are in the consumer's best interests.
"The cost of a product - such as interest rate, fees and charges and repayment size - is a factor that should generally be prioritised during this assessment," the draft reads.
"Where other non-cost considerations affect what is in the consumer's best interests, brokers should assess whether those considerations or loan features have a realistic possibility of offering the consumer good value or a net benefit relative to other options."
Thinking about refinancing to a low-rate, variable owner-occupied home loan? Below are a handful of low-rate loans in the market.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) owner-occupied home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
The new rules aim to stamp out some mortgage brokers from pushing borrowers into unsuitable loans, or encouraging them to go with credit providers who pay fatter commissions.
"Most consumers do not pay mortgage brokers for their services. Typically, credit providers pay brokers for their services with commissions," the draft reads.
"These commissions can create conflicts of interest where they may influence the broker's recommendations in favour of the credit provider.
"A failure to consider cost and investigate the lowest cost options available to the consumer may be indicative of non-compliance."
The draft rules also state that brokers should present borrowers with a range of loan options, instead of just one or two.
"Consumer research found that consumers are often not presented with a range of options, with 58% of consumers surveyed receiving two or fewer loan options," it said.
"Our research also found that it is important that consumers are helped to understand the options presented, so they can meaningfully compare options."
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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