Following the recommendation of common sense changes to the mortgage broking industry in the banking royal commission's final report, consumer advocate CHOICE has detailed the problem with the industry and why it needs to change.
"What we think brokers do and what they actually do is very different," says Erin Turner, Director of Campaigns and Communications at CHOICE.
"Brokers make lots of promises to get you the 'best' or the 'perfect' loan, but legally they just need to arrange something you can afford to pay. We need laws that make them live up to these basic promises."
"We trust them to compare loans and get us the best one, but they actually get paid by the banks to sign you up to bigger loans than you need and push you to lenders who pay them bigger commissions."
CHOICE says the key problems with mortgage broking are:
- They say they'll get us the best deal, but that isn't what happens or what the law requires them to do.
- They give the impression they'll compare lots of loans and get us the best one, when in reality most brokers compare a limited range and refer most people to just four lenders.
- We can't trust their advice while they get paid commissions. The corporate cop ASIC found that kick-backs in the mortgage broking sector can drive people to bigger loans and more expensive products.
- Many big banks own broking companies like Aussie Home Loans. Mortgage brokers owned by a big bank are more likely to send loans their way.
"We want good brokers who actually get us the best deal," says Turner.
"That's what the royal commission has recommended – that the mortgage broking industry be restructured to work for us, and not for their own interests.
"These changes to mortgage broking are really positive and good mortgage brokers who want the best for us will be rewarded."
Erin Turner, CHOICE's Director of Campaigns and Communications.
CHOICE spokespeople are available for comment.
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