Yesterday, 29 August, the Australian Securities and Investments Commission (ASIC) released a report detailing the consumer experience of looking for a home loan, with a strong emphasis on the broker's role in the process.
The regulator drew from both the detailed experiences and expectations of over 300 consumers, as well as a survey of a further 2,000 consumers who’d either recently taken out a home loan or were in the process.
The report, entitled Looking for a mortgage: Consumer experiences and expectations in getting a home loan, found that all participants expected their broker to get them the ‘best’ home loan, which hinged on their understanding that the crucial difference between brokers and lenders is the access a broker has to a wide range of lenders and products.
However, the report concluded that mortgage brokers are “inconsistent” in the ways they present home loan options to consumers, at times offering little to no explanation for the reasoning behind their recommendations.
Further, of those surveyed, 33% were presented with only one loan option by their broker, while a further 25% received just two.
The report also claimed broker businesses tend to recommend loans from a smaller number of lenders, with some brokers pushing products from their preferred lenders.
ASIC commissioner Sean Hughes said, “Lenders, brokers and aggregators must step up to make it easier for consumers to meaningfully compare loan options and for brokers to communicate how a home loan option has been selected for them.”
According to Hughes, the best interests duty for mortgage brokers “will align the role of brokers to the reasonable expectations of consumers.”
Yesterday’s release also referenced ASIC’s 2017 report into conflicted broker remuneration, which concluded consumers who obtained a loan through a broker borrow more, have higher loan to valuation ratios, spend more of their wage on a mortgage, and take out more interest-only loans.
“Our research suggests that some consumers are taking out home loans when cheaper alternatives may well exist,” said Hughes.
“We are working with other regulators to develop a new home loan interest rate tool to improve price transparency for consumers to compare options. We expect this tool will be made available on ASIC’s MoneySmart website next year,” he added.
There are some who have pounced on the report and brandished it as a weapon, calling for further legislative change within the broking industry.
The Financial Rights Legal Centre claimed the research provides “further evidence the mortgage broking sector needs reform.”
“Consumers have a natural expectation that their broker will look after their best interests in obtaining a loan – but all your mortgage broker has to do is ensure that the loan is ‘not unsuitable’ for you, not find the best loan for you,” said Alexandra Kelly, Financial Rights’ director of casework.
The legal centre highlighted ASIC’s findings that those using a mortgage broker tend to be younger, have lower incomes, and be first home buyers with less knowledge about home loans, all of which leave them more vulnerable to bad counsel.
However, mortgage broker Aussie’s perspective differed. Brokers are not preying on first home buyers’ naivete, but helping to guide them through the increasingly complicated home ownership process.
Aussie acknowledged the validity of ASIC’s conclusion that consumers often find securing a home loan to be overwhelming, having recently conducted their own independent research revealing that 70% of borrowers would describe the process negatively.
“Customers are voting with their feet – they still overwhelmingly want to work with a broker, and ASIC’s survey recognises the important role brokers play in helping borrowers achieve a home loan, especially first home buyers,” said Aussie’s chief customer officer, David Smith.
Smith clarified that just because a certain home loan might be the cheapest, that doesn't mean it's always the right option for the consumer.
In fact, ASIC’s survey acknowledged the ambiguous nature of finding the “best” home loan, with approximately two thirds of respondents linking it to the lowest interest rates and the remaining third more interested in securing a product with flexible features catered to a range of specific needs.
“ASIC’s price comparison tool is a good thing, but there are many other factors to consider beyond just price when it comes to choosing the right home loan, which is why the process is so confusing for customers,” said Smith.
“The broker is key to cutting through the clutter.”