Brokers were “inconsistent” in the ways they presented mortgage options to borrowers and sometimes provided little or no explanation of the “options considered or reasons for their recommendation”, according to new ASIC research.
The Australian Securities and Investments Commission (ASIC) has 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.
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.
Consumers expecting best rate
ASIC has stated that it found that when looking for a home loan via a broker, consumers sought expertise or expected that the broker would “do the work for them”, but ultimately expected the broker to “get the best home loan for them”.
“This view often appeared grounded in consumers’ general understanding that a key difference between brokers and lenders is that a broker has access to a range of lenders and loans,” the report read.
ASIC added that such findings were supported by its survey, which found that consumers who believed they secured close to the best rate and used a mortgage broker were more likely to trust that the broker had found them the best rate than to believe it was because they had shopped around themselves.
Broker conduct was ‘inconsistent’
According to ASIC’s survey, 58 per cent of consumers received two or less loan options from brokers, adding that based on its observations of consumer experiences, there was an “inconsistency” in the way brokers presented home loan options.
“Most consumers were provided with multiple loan options, some consumers (often first home buyers and consumers with circumstances that might have limited their ability to get a loan) tended to be given only one loan recommendation,” ASIC stated.
“If consumers received options from a broker, some consumers considered the options themselves and some were guided by the broker, depending on how the options were presented.
“It was not always clear that brokers had presented a loan recommendation or options in a way that enabled consumers to understand the objective criteria behind the recommendation of the specific loan(s).”
Further, ASIC’s research found 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” and also “valued convenience”, with 69 per cent taking out their loan with a lender they had an existing relationship with.
The regulator also noted that one in five consumers said they believed they could have secured a better interest rate on their home loan or were not sure whether they had received a good rate.
Following the release of the report, 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.
“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.
“Our 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.”
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”.