The Customer Owned Banking Association (COBA) has sounded an alarm on mortgage brokers in a submission to the parliamentary inquiry into home ownership.
Despite referring to the recent Observations on mortgage broking
report commissioned by the MFAA
, which found that consumers generally do feel they receive a superior experience from a broker, the banking association has claimed that brokers may take the hassle out of the mortgage process but “they fall a long way short of delivering the best result for the customer”.
“While mortgage brokers can serve a useful purpose, it is important that consumers are aware of what brokers provide, and more importantly, what they don’t,” the submission states.
“Commonly held misconceptions about the mortgage broking sector mean that consumers are often left with an incomplete understanding of a broker’s limitations.”
The major misconceptions, COBA explains, relate to false impressions of transparency and best practice.
“Firstly, a number of consumers incorrectly believe that mortgage brokers have access to the products of all lenders. They don’t… As such, where a potential home buyer chooses to use a mortgage broker, the product which best meets their needs at the best price is often not part of the broker’s considerations.
“This problem is further compounded by another incorrect perception held by customers, namely that the broker is obliged to offer them the best product. Again, this is not the case. In reality, brokers are only required to recommend a loan that is ‘not unsuitable,’ a far cry from the best home loan for the customer, and possibly not even a particularly good product for the individual.”
COBA has also expressed concerns about a lack of disclosure regarding vertical integration in the mortgage broking industry.
“According to the Mortgage and Finance Association of Australia [MFAA
], aggregation/broking groups that are owned by the big four banks, totally or substantially, comprise an estimated 40% of mortgage brokers,” the submission states.
COBA has staunchly and repeatedly opposed vertical integration in the past
Finally, COBA noted that current arrangements around how mortgage brokers are incentivised can cause a conflict of interest.
“Often, a mortgage broker has an incentive to advise a customer to take out a larger loan, rather than the loan that is in the customer’s best interest. There may be opportunities for reforms which better align the interests of mortgage brokers and their customers in this space,” the banking association noted in its submission.