Home lending watchdog barks correction from brokers
The home lending industry have come under fire from the Australian Securities and Investment Commission in its recent report, Looking for a mortgage: Consumer experiences and expectations in getting a home loan.
ASIC research highlights the importance of reforms for mortgage brokers and home lending.
As part of this research, ASIC followed over 300 consumers in the process of taking out a home loan and surveyed another 2,000 consumers.
The Commonwealth regulator’s research examines consumer decision-making in relation to home loans to identify what factors influence their journey.
Home lending regulator research findings
Key findings from the watchdog’s research include:
- Consumers who visit a mortgage broker expect the broker to find them the ‘best’ home loan
- Mortgage brokers were inconsistent in the ways they presented home loan options to consumers, sometimes offering little (if any) explanation of the options considered or reasons for their recommendation
- First home buyers were more likely to take out their loan with a mortgage broker.
The report shows that consumers taking out a loan directly through a lender were more likely to be a refinancer or have had previous experience taking out home loans.
Consumers who went directly to a lender valued convenience, with 69% taking out their loan with a lender they had an existing relationship with.
Consumers felt taking out a home loan was “overwhelming experience.”
Although most consumers set out to find the best loan they could, 1 in 5 consumers believed that they could have got a better interest rate on their home loan or were not sure whether they had even got a good rate.
ASIC Commissioner Sean Hughes said, “A home loan is one of the most important financial commitments a consumer will make.”
“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,” Commissioner Hughes said.
In an effort to improve lending practice standards across the mortgage industry, “ASIC strongly supports the recent Government announcement to enact a best interests duty for mortgage brokers.”
“Importantly, the implementation of such a duty will align the role of brokers to the reasonable expectations of consumers,” Mr Hughes said.
The research also; ‘suggests that some consumers are taking out home loans when cheaper alternatives may well exist. 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,’ ASIC stated.
Home lending and broking industry remuneration unfavourable to consumer outcomes
In March 2017, ASIC published the findings of a review into the effect of remuneration structures in the mortgage broking market on the quality of consumer outcomes:
The watchdog found that current remuneration practices create conflicts of interest that may contribute to poor consumer outcomes.
As part of this review, the commission also found that consumers who obtained their loan through a broker:
- Borrow more
- Have higher loan to valuation ratios
- Spend more of their wage on a mortgage
- Take out more interest-only loans
- Get the same rate as customers that go directly to a lender.
ASIC’s MoneySmart website has information for consumers about choosing a home loan and using a broker.
Consumers can also use MoneySmart’s mortgage calculator to compare home loans and work out whether they can save money by switching to another mortgage.
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