ASIC tells mortgage brokers to find best loans for borrowers

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on February 21, 2020
ASIC tells mortgage brokers to find best loans for borrowers

Photo by andrew welch on Unsplash

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according to the Australian Securities and Investment Commission (ASIC) which has started a four week consultation on draft guidance for new laws about the best interests duty (BID) for mortgage brokers.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."

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    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."




    Disclaimers

    The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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    author-avatar
    Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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