In 2018, The Adviser undertook its biggest survey in its history, the Consumer Access to Mortgages Report, surveying borrowers about their mortgage experiences through the direct and third-party channels. Last year, The Adviser once again commissioned Momentum Intelligence to provide the ammunition the industry needs to slay the common misconceptions, misinformation and myths surrounding the mortgage process. Annie Kane reveals all.
In the midst of the royal commission in 2018 and all of the talk around fees for service and “good consumer outcomes”, The Adviser commissioned Momentum Intelligence to research what borrowers actually think about the mortgage process.
Asking borrowers what they want and value from the mortgage process, Momentum Intelligence shed much-needed insight into what mortgagors think about the way brokers are remunerated. The research was a key piece of insight into the debate around fees for service in 2019 and helped provide the industry with the evidence it needed to demonstrate what the impact of moving to a fee-for-service model would be – just as politicians were mounting their responses to the final report of the royal commission.
With the federal government postponing any decision on changing broker remuneration for a few years, The Adviser turned its thoughts to answering other unknown factors for the second annual report.
In addition to re-establishing borrowers’ experiences in the home loan journey in a bid to better inform industry stakeholders on the behavior expectations and experiences that drive the decision consumers make when accessing finance, the 2019 survey also asked borrowers to help answer the mysterious concept of “best interest”.
Given that mortgage brokers are set to be held to a new legal standard from 1 July 2020 (that is: to work in the “best interests” of the consumer) and there still being no guidance around what this actually looks like (at the time of writing), The Adviser was keen to know the thoughts of the borrowers themselves.
About the heroes
Between November and 31 December 2019, Momentum Intelligence adopted a quantitative research method that asked participants to complete a three-minute questionnaire via an online survey portal.
Overall, there were 2,195 responses received with an extensive data validation process resulting in a total usable sample of 1,956 consumers. A sample of this size gives these results a margin of error of 2.2 per cent within a 95 per cent confidence level, which is an excellent confidence level for this study.
Approximately 60 per cent of respondents were sourced from Momentum’s brands (including Smart Property Investment, nestegg.com.au, MyBusiness, Lawyers Weekly, Accountants Daily and ifa), with the remaining 40 per cent sourced from the clients of mortgage brokers that read The Adviser and Mortgage Business.
Eighty-nine per cent of respondents were identified as “borrowers” (those that had previously secured a mortgage), while 11 per cent were “non-borrowers” (those that had never secured a mortgage).
The responses were collated and formed the backbone of the white paper, the 2020 Consumer Access to Mortgages Report.
All findings explored in this year’s white paper and this presentation are statistically significant within their relevant confidence intervals.
The lay of the land
Firstly, the survey sought to understand how borrowers are finding the mortgage process.
Like the first survey, the report found that borrowers who had used a mortgage have significantly higher levels of satisfaction (88 per cent) than proprietary channel customers (70 per cent). Focusing on borrowers that had secured a mortgage in the last 12 months, mortgage broker customers had a satisfaction rate of 88 per cent, while proprietary channel customers had a satisfaction rate of 67 per cent. (See Graph 1.)
As well as being more satisfied, broker customers also had higher trust levels than proprietary channel customers (89 per cent, compared with 67 per cent). While trust would often likely be higher with an individual than an institution (as the case is here), the success of the broker channel was also clear in the fact that 93 per cent of broker customers would use a broker again in the future, while only 63 per cent of consumers who secured their previous loan through the proprietary channel said they would return to this channel. Indeed, more than a third (37 per cent) of direct customers said they would switch to using a broker the next time they needed a loan.
Generally, repeat business seems to be led by convenience. For individuals who have previously used a mortgage broker and are likely to use a mortgage broker in the future, the key reason for choosing this channel came down to the “existing relationship” that they had with the broker (48 per cent).
More than half of proprietary borrowers also said they would use this channel again for their next loan due to the fact that they have an existing relationship with the lender.
Both broker and direct customers said they would use the same channel again as they believe they secure a better rate/price through their respective channels. Interestingly, those borrowers that indicated that they would use a different channel the next time they get a loan also stated that this was because they believed that they would secure a better rate/price through the alternative channel.
Similarly, consumers who had not yet taken out a mortgage were split on which channel would give them the best rate. Fifty-three per cent of those who said they would use a broker cited rate as a reason, while 52 per cent of those who said they would go direct said the same thing.
These findings show that borrowers are not sure which channel can offer them the most competitive rate. According to ASIC’s 2017 Review of mortgage broker remuneration, broker customers get the same rate as direct customers.
The main difference between the broker and direct borrowers is that more broker customers believed they would receive better customer service using the same channel again than their direct channel counterparts (44 per cent of broker customers, compared with 20 per cent of proprietary borrowers).
Myths and legends
With rate being a prime factor for borrowers, Momentum Intelligence asked consumers whether they think lenders charge consumers a higher interest rate if they use a mortgage broker to secure a mortgage.
More than a third of respondents were either unsure (21 per cent) or – more worryingly, believed that they did (15 per cent) – despite ASIC’s 2017 report showing that this is not the case.
Many participants stated that they believe lenders are unlikely to shoulder the cost of broker commissions and therefore are likely to pass on the cost to the consumer directly via the loan’s interest rate. These sentiments were echoed by mortgage broker customers and proprietary channel customers but were more common in proprietary channel customers.
Unsurprisingly, proprietary channel customers were significantly more likely to believe that they would be charged a higher rate for using a mortgage broker than broker customers (20 per cent versus 9 per cent). Broker customers were also more adamant in the counter belief, with 74 per cent stating that lenders do not charge more – compared with 58 per cent of proprietary channel customers.
This widespread misconception is particularly worrying when it comes to those who have not yet taken out a mortgage – as a belief that brokers charge more could impact the number of people who use a broker.
Indeed, when asked whether they believed lenders charge broker customers a higher interest rate, more than one-third (36 per cent) of non-borrowers who intend to use the proprietary channel in the future believe that they will be charged a higher rate for using a mortgage broker.
The golden apple
The results of the survey indicate that there are four areas of support that are most important to borrowers:
Momentum Intelligence found that mortgage brokers provide superior levels of service in each of the areas of support listed. Overall, mortgage brokers had an “exam” mark of 86 per cent maximum score, while lenders had 66 per cent.
If the mortgage broking industry could effectively communicate that borrowers will not be charged a higher interest rate by using a broker – as found by ASIC – it would seem that broker market share would naturally increase, given that the broking industry is already excelling in the four key areas of support.
Best interests: Into the unknown
Aside from providing quantitative research, Momentum Intelligence was also charged with finding out what consumers thought was in their “best interests” when it came to a mortgage, and who should be providing it.
Given that the survey was released in November 2019, after the Best Interests Duty Bill for mortgage brokers was introduced to Parliament on 28 November 2019, The Adviser was keen to uncover consumer attitudes to this subjective concept.
The survey therefore asked respondents whether mortgage brokers and/or lenders should operate in the best interests of the consumer and, if so, what that would entail.
The majority of consumers who provided responses to this question agreed with the sentiment that both these parties should be acting in the consumers’ best interests when helping them secure a loan.
While the responses were wide-ranging, the core criteria for “acting in their best interests” include:
A recurring theme among this feedback, specifically towards mortgage brokers, was the call for transparency and clarity around how the broker determined the lender(s) they ultimately recommend to the consumer.
Many consumers highlighted that by providing this information, as well as the level of commission payable by each lender, they could have greater assurance that the mortgage broker would be acting in their best interests.
This finding is echoed by ASIC’s consumer research, which suggested to industry participants that they “should provide consumers with greater transparency about the home loan recommendation(s) presented to them”.
The fact that consumers think lenders should be acting in their best interests is particularly interesting, given that the incoming legal obligation is only applicable for mortgage brokers. This legal obligation could therefore become a benefit for brokers when it comes into force in July, as they will be able to outline to consumers that only they are required to work in their best interests (as lenders are not legally required to do so).
We asked consumers: Do you think mortgage brokers and/or lenders should work in your best interests when helping you secure a mortgage? If so, what does that entail?
Here's what mortgage broker customers had to say:
“Yes, they should be open and honest about what they are able to do for you in your specific situation. They should identify your key goals and discuss the best way to achieve them in an open and transparent manner.” - Mortgage broker customer
“My best interests should include listening to my concerns and knowing what questions I SHOULD be asking but may not know I need to, considering my current financial position and what I hope for future planning.” – Mortgage broker customer
“Yes. They should [be] blind to payment and look at my whole circumstances to be able to source the best option for me at that moment in time.” – Mortgage broker customer
Here's what proprietary channel customers had to say:
“Lenders should work in the best interests of the customer, especially in regard to responsible lending. Telling some customers that they cannot afford a loan can be the right answer.” – Proprietary channel customer
“Yes, they should. It’s about understanding my wider needs and objectives and recommending a suitable solution. Understand that this can never be ‘absolute’ (i.e. the best) but it has to be better than simply what’s the cheapest rate.” – Proprietary channel customer
“Yes, should work in [the] best interests of borrower by ensuring they are offered [the] best product for their circumstances and fully understand what they are committing to, i.e. education as well as selling. Also, should maintain contact through life of mortgage to ensure nothing can be updated/improved.” – Proprietary channel customer
Into the light
The findings of the 2020 Consumer Access to Mortgages Report provide a valuable snapshot of how consumers view the mortgage process. We hope that by sharing the Australian public’s belief systems with the industry, we can help this sector thrive in its quest of improving financial literacy and conquer any insecurities borrowers may have around the mortgage process – living happily ever after.
You can download the 2020 Consumer Access to Mortgages Report for free at:
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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