…. and how to get the best home loan deal ‘I want the best home loan’ By Jason Bryce Low interest rate, low fees, fixed rate, variable rate, extra features, offset, redraw, discounts on insurance and credit card fees, frequent flyer points. There are plenty of different reasons to choose a particular home loan product. Now, new government research has revealed what Aussies really want from their home loan – and how many Aussies are NOT finding the ‘best’ home loan for their needs. What is the “best home loan?” “I want the best price, lowest interest rate,” a first home buyer told researchers from the Australian Securities and Investments Commission. “…just a matter of going through this process and getting the best rate …” said a refinancer. When Aussies go looking for a new home loan, the ASIC researchers found they had high hopes of finding “the best home loan.” But what do they mean by ‘best home loan?’ They usually mean they want the lowest interest rate or lowest overall price. And many Aussies, especially first home buyers, think that finding the cheapest home loan is a job for their mortgage broker. Brokers now sell about 60 per cent of all home loans in Australia. In fact, so unconfident are many Aussie borrowers, they don’t what interest rate their lender is charging them on their home loan. InfoChoice lists more than 800 mortgage products from Australia’s banks, credit unions and non-bank lenders. Are mortgage brokers free? Many borrowers prefer to access the expertise and experience of a broker. “To use a broker at least first off, not to go straight to a bank, they’ve done all the groundwork and comparison for you, they can get you the best rate,” said a non-first home buyer. Most mortgage brokers do not charge borrowers for their services, they receive commissions from the lenders. Many Aussies believe that mortgage brokers can access cheaper rates than borrowers going directly to the banks themselves. Or they believe that their broker has shopped around and found close to the ‘best’ rate available from many different lenders. That belief drives many borrowers who are not experienced with mortgages (like first home buyers and young people) to mortgage brokers. Mortgage broker customers are younger (by an average of two years) and have lower incomes (by an average of $6,000) than borrowers who apply directly to home lenders. They also do less research themselves. “Hoping that the broker would be able to guide us, do all the work to find us the perfect one—we had no idea what was best,” said a first home buyer who used a broker to get a home loan. BUT, 58 per cent of consumers who used a broker were given two or less options for home loans. “Broker only presented one option and I felt compelled to proceed with that one,” said a first home buyer. There is no evidence that broker home loans are “either cheaper loans or more expensive loans,” according to the ASIC research. And more concerning is the finding that some borrowers felt their mortgage broker was ‘pushing’ a particular loan product (or amount). These people were concerned their broker may have been trying to sell something that was not in their interest. Are mortgage brokers better than banks? Mortgage brokers can access loan products from more than one lender and can help borrowers through the loan application process. Mortgage brokers do not access the whole market of all loans from all lenders in Australia. Both ASIC and researchers from the Productivity Commission found no evidence that loans arranged through brokers are either cheaper or more expensive than loans sourced directly from lenders. “Home loans obtained through brokers aren’t significantly different to those obtained directly from lenders,” found the Productivity Commission. Are mortgage brokers trustworthy? Yes, mortgage brokers are required to abide by responsible lending rules, just like banks. ASIC recommends that, before choosing a mortgage broker, consumers make sure the broker is properly licensed. A mortgage broker must be listed on (at least) one of the following ASIC registers: Credit Registered Person. Credit Representative. Credit Licensee. To check if your broker is registered, go to ASIC Connect and choose one of those three list names from the “Select Register” drop-down menu. If you can’t find your broker at ASIC Connect, they may be operating illegally. Are mortgage brokers regulated? Yes, the mortgage broking industry must comply with a wide range of laws. Mortgage brokers must be qualified and have been mentored for at least two years. The Hayne Royal Commission into misconduct in the financial services sector made recommendations for changes to regulations and remuneration practices in the broking sector, which are now being acted upon by the Morrison government. “Scrutiny of our industry and changes to regulation are to be expected, given the Royal Commission recommendations,” said the Mortgage & Finance Association of Australia in a statement last week. “It’s appropriate that our practices will be regularly reviewed by government and regulators.” Part of this review is a proposed ‘best interest’ requirement. Mortgage brokers are now required to recommend loans that are “not unsuitable” to the borrower. But the federal government has proposed new laws that require brokers “to act in the best interests of consumers at all times.” The exposure draft bill also requires brokers “address conflicted remuneration” (such as trail and up-front commissions). Where there is a conflict of interest between the best interests of the borrower and the remuneration deals of the broker, the broker is required to “give priority to the interests of their customers.” Some kinds of commissions will be banned and other benefits paid to brokers by banks, such as holidays and entertainment, will be capped. The new rules are due to be introduced on 1 July 2020. How to find the best home loan rates and deals The best home loan deal for you and your needs may not be offered by the bank you are currently using. And banks don’t make comparing their loans straightforward and easy according to the Productivity Commission which called many bank home loan deals “opaque.” Consumers can compare home loan deals, rates and prices from Australia’s banks, credit unions and non-bank lenders at InfoChoice. The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.