Need to know
- Aussie Home Loans claims trigger ASIC complaint
- CHOICE says Australia's biggest mortgage broker may be misleading home loan customers
- We call on government to enact best interest duty
Mortgage broking businesses that claim they can find you the best deal are probably misleading home loan customers.
Aussie Home Loans, owned by Commonwealth Bank, is a prime offender for making such claims, and we've singled them out in a complaint lodged with ASIC this week.
The CBA subsidiary is Australia's largest mortgage broking business; it spent $25 million to advertise its services between 2016 and 2018.
In our investigation, we spotted claims by Aussie Home Loans that included: "Aussie will shop around to find you the best deal which could save you thousands", and "find the best mortgage rate by comparing from over 3000+ home loans", along with similar pitches.
One ad said brokers could find you the "perfect loan".
In our complaint to ASIC, we've contended that such language misrepresents how Aussie Home Loans mortgage brokers and the industry as a whole actually operates.
"Aussie Home Loans is a well-disguised sales outpost for the Commonwealth Bank," says CHOICE CEO Alan Kirkland. "Aussie Home Loans makes claims of finding Australians the 'perfect loan' or the 'best loan', yet ASIC research found it sent two in five loans straight back to the Commonwealth Bank."
In our ASIC complaint, we make the case that Aussie Home Loans advertising claims are potentially misleading and deceptive because they make the following representations:
- Brokers will find people a high quality loan.
- Brokers will scan the market to find the best product.
- Mortgage brokers are 'free'.
"CHOICE is concerned that people who have seen these ads are likely to have formed the incorrect impression that mortgage brokers will scan the market to find them a high-quality loan, when the industry has failed to achieve this," Kirkland says.
People who have seen these ads are likely to have the incorrect impression that mortgage brokers will scan the marketCHOICE CEO Alan Kirkland
The investigation was conducted with the assistance of CHOICE supporters, who tracked Aussie Home Loans advertising claims for a week and documented what they found.
We make clear in the ASIC complaint that the Aussie Home Loans advertising claims are not an isolated case; they're indicative of what has long been happening across the mortgage broking industry.
No duty to put the client first
Despite the marketing claims, mortgage brokers at Aussie Home Loans and other businesses are only required to match aspiring homeowners with loans that are "not unsuitable" and have no duty to act in the client's best interest or find the best loan.
As we've reported previously, the commission-based mortgage broker remuneration model currently incentivises brokers to recommend loans that pay the highest commissions, and to push for bigger loans to increase the size of that commission.
For some brokers, these considerations can and have taken priority over what's best for the client.
Contrary to the advertising material, aspiring homeowners are finding better loans by going straight to the lender
Contrary to the advertising material, aspiring homeowners are finding better loans by going straight to the lender, 80% of broker-recommended loans go to just four lenders, and commissions paid to brokers add 16 basis points per annum to the cost of every residential mortgage in Australia.
Earlier this year we investigated the questionable training mortgage brokers are required to undergo, which focuses heavily on lining up business and closing the deal, and gives scant attention to meeting the client's needs.
Key recommendation on hold
We believe the mortgage broker industry is due for an overhaul, and we're not the only ones who hold this view.
One of the key recommendations of the recent banking royal commission's final report is that a mortgage broker best interest duty be introduced to ensure brokers put client interests above their own.
The current government has promised to introduce this law by the end of 2019.
We're calling on government to turn this recommendation into law, and we're calling on ASIC to investigate dodgy mortgage broker claims across the industry.