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The findings from ASIC’s shadow shopping exercise “reinforces the value” of mortgage brokers by highlighting the advantages of securing a loan via the third-party channel, industry stakeholders have said in response to the new report.
The Australian Securities and Investments Commission (ASIC) yesterday released new research, titled Looking for a mortgage: Consumer experiences and expectations in getting a home loan, as part of a study based off its observations of 300 consumers who were in the process of taking out a home loan, as well as a survey of an additional 2,000 consumers.
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The research was designed to examine consumer decision-making in relation to home loans to identify what factors influenced their determination.
According to ASIC, the key findings of its research were:
- 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.
Following the release of the report, ASIC commissioner Sean Hughes said that lenders, brokers and aggregators “must step up” to make it “easier for consumers to meaningfully compare loan options”, adding that brokers should “communicate how a home loan option has been selected for them
Mr Hughes stated that some consumers were offered loans when “cheaper alternatives” were available, with and stressed the need for greater price transparency.
However, upon reflection of the report, broking industry stakeholders have identified positive findings that highlight the benefits of securing a loan through the broker channel.
The research found that of those who used the broker channel, 42 per cent trusted that they’d receive the best interest rate, compared to 17 per cent of those who went direct to lender.
This follows on from the findings of Momentum Intelligence’s Consumer Access to Mortgages Report, which found that 96 per cent of borrowers were either “very satisfied” or “satisfied” with the service delivered by a broker.
Connective’s managing director, Mark Haron, told The Adviser: “When you read the report in its entirety, it does indicate that going to a mortgage broker gets you a significantly better result than going direct to a bank branch.
“While it may on the surface look like its bashing brokers, it’s actually reinforcing some of the great things that we do.”
However, Mr Haron stressed that the “best” home lending solution for a broker does not always equate to the cheapest interest rate.
“There’s a whole range of things customers need as part of the loan and the process of getting the loan,” he said.
“The cheapest interest rate isn’t necessarily in their best interest when there are other factors that are more important.”
Managing director of the Finance Brokers Association of Australia (FBAA) Peter White agreed: “It’s always very subjective. Best is not always cheapest.
“I think quite often that gets lost a little bit. Just because somebody thinks they should have got the cheapest home loan, as far as interest rates are concerned, it doesn’t mean it was the best one for their circumstances.”
He added: “It’s not like the borrower doesn’t agree to what they take up.
“I always get a little bit concerned when you get commentary that suggests that the borrower has no input, or the borrower has no responsibility for the decisions they make, and they certainly do.”
Mortgage Choice CEO Susan Mitchell welcomed the findings, stating that complexities in the home lending process identified in the report further highlight the utility of the broker proposition.
“The report demonstrates how complex the home loan journey is for borrowers, and we believe it reinforces the value of mortgage brokers who can guide borrowers through the home loan process, particularly those who are undergoing the home loan journey for the first time and those who are less knowledgeable about the process,” she said.
FBAA slams CHOICE
Following the release of ASIC’s research, consumer group CHOICE claimed that the mortgage broking sector is exacerbating the “competition problem”, pointing to ASIC’s finding that almost half of consumers who used a broker were recommended a product from their existing bank.
CHOICE also pointed to ASIC’s finding that 58 per cent of broker clients were recommended less than two loan products.
In response, the FBAA managing director said CHOICE’s comments further illustrated their “disturbing lack of real understanding” of the broking sector.
“I thought CHOICE was meant to provide an independent and unbiased assessment, yet here they are again making extreme, unsubstantiated claims,” Mr White said.
He added that brokers have always looked to give potential borrowers the very best range of options.
“I believe most borrowers are given between four and six options,” he said.
“If brokers are only given one or two options, then that needs to be looked at.”
The FBAA head noted that some borrowers may only be suitable for less than two loan products.
“In reality, depending on the borrower’s circumstances, there may only be one or two options, so it would be wrong to make a generalised statement without knowing all the details of those specific cases,” he said.
“But if we need to, let’s up our game as an industry.”
The release of the research came a day after ASIC announced in its Corporate Plan for FY20 to FY23 that it would be “examining mortgage broker accountability for home loan recommendations” and whether such recommendations “align with consumer requirements and objectives”.
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