The Customer Owned Banking Association (COBA) is calling for the Financial System Inquiry to restore trust in mortgage brokers, after findings of the Choice “shadow shop” of mortgage brokers claimed borrowers encountered “inappropriate advice” from brokers.
The final report of David Murray’s Financial System Inquiry warned that high market concentration and increasing vertical integration in some sectors of the financial system could limit competition in the future.
However, according to COBA, the FSI needs to act on increasing vertical integration in mortgage broking specifically.
“Mortgage broking is one such area of concern, given that aggregation/broking groups which are totally or substantially owned by the big four banks comprise an estimated 40% of mortgage brokers,” COBA CEO Mark Degotardi said.
“The FSI found that often consumers don’t understand mortgage brokers’ association with product issuers and how this might limit the products brokers can recommend. The FSI said greater transparency would help to build confidence and trust.”
COBA has also pointed to consumer advocacy group, Choice’s investigation into mortgage broking as further evidence that the mortgage broking sector needs urgent reform from the FSI.
“Consumer groups have this week put the spotlight on some poor behaviour by mortgage brokers. CHOICE, the Consumer Action Law Centre (CALC) and Financial Rights Legal Centre are calling for an investigation of the mortgage broking market, focusing on commissions and disclosure,” Degotardi said.
“Brokers play an important role in the home loan marketplace and when first home-buyers use a broker they should not have to worry about whether the broker is really on their side.
“CHOICE has uncovered practices where customer interest is coming a distant second. This is further evidence of the importance and urgency of the FSI reform agenda.”
However, recent research commissioned by the MFAA
revealed that mortgage brokers were responsible for 64.7% of the growth in the mortgage market in the year to December 2014. Mortgage brokers now account for 50.5% of total home loan market share.