Need to know
- The report found that most Australians are unaware of how the mortgage broking industry works
- They don't get the best possible deal on their loan when using the services of a broker
- A significant proportion will struggle to meet their mortgage repayments
If you use a broker to find a mortgage, you probably think they'll get you the best deal, despite the fact that a broker is only obliged to provide a "not unsuitable" loan.
You wouldn't be alone in this misconception – research released today shows that people engaging a broker expect to be provided with the "best" home loan for them.
That's just one of the key findings in a new report from ASIC, 'Looking for a mortgage: Consumer experiences and expectations in getting a home loan'.
The regulator followed more than 300 people in the process of taking out a home loan, and surveyed more than 2000 others who'd either recently taken out a home loan or were in the process of doing so.
"This research demonstrates just why we need strong professional obligations for mortgage brokers, as recommended by the royal commission and proposed by the government," says CHOICE CEO Alan Kirkland. "CHOICE is fighting for this new law to be as strong and clear as possible, with no loopholes."
Seven key findings
The findings of the report suggest that most Australians are unaware of how the mortgage broking industry works, that they don't get the best possible deal on their loan when using the services of a broker, and – more worrying still – that a significant proportion will struggle to meet repayments.
The key findings are:
- Consumers expect brokers to find them the "best" loan.
- Consumers are most likely to take out their loan with a lender they have an existing relationship with.
- Consumers who use brokers are different from consumers who go directly to a lender.
- How brokers present loan options to consumers is inconsistent.
- Consumers have a mixed understanding of how brokers are paid.
- The importance of finding a good rate seems to decrease throughout the journey.
- One in 10 consumers in the survey say they're struggling to meet their repayments.
We need better
"Nearly half of all people who see a broker end up with a loan with their existing bank. One in ten people are struggling with their home loan costs within a year," says Kirkland.
One in ten people are struggling with their home loan costs within a yearCHOICE CEO Alan Kirkland
"We have a major competition problem in the home loan sector but the mortgage broking sector isn't fixing it – it's making it worse. 49% of people who see a broker still end up with their existing bank. Given that most people have accounts with one of the big four banks it's very unlikely that they're getting the best deal.
"In 58% of cases, mortgage brokers are recommending just one or two loans and are not giving people the information they need to understand whether these loans are good options."
Finding advice you can trust
Requiring brokers to act in the best interests of their customers will help drive predatory sales practices away from the sector.
"Mortgage broking can and must be better. Australians, particularly younger, less experienced and less wealthy borrowers, are relying on mortgage brokers to get them a fair deal. They should be able to get advice they can trust," says Kirkland.
Until we have these much needed reforms, borrowers should be aware of what to look for when engaging the services of a broker. It's also important that you understand the sales tactics you're likely to encounter when dealing with a mortgage broker, something identified in multiple investigations we've undertaken.
Stock images: Getty, unless otherwise stated.