Would you pay a mortgage broker upfront to find you the best home loan? Even if it meant using some of the funds from your hard earned deposit?
This is one of the recommendations from the Hayne Royal Commission into the financial services sector, detailed in a final report released last month. The report concluded months of investigation and thousands of public submissions, and included a total of 76 recommendations across various financial industries.
And while some of the changes have been met with open arms by the general public, others have left people and industry a little bemused. With an aim to expose misconduct in financial services and give power back to the people, there appears to be a growing concern that some of the changes (if enacted) could actually do quite the opposite.
Christine Murray, Managing Partner of Meyer Vandenberg Lawyers, says the potential reforms to mortgage broking could make mortgage broking businesses unsustainable – ultimately forcing borrowers back to the big banks and cutting their access to smaller lenders and independent advice.
“Everyone is busy and many people seek the assistance of experts to help them navigate an unfamiliar industry. Borrowing is no different. With a mortgage broker by their side, borrowers can be assured that they have negotiated the best deal possible from a range of lenders. I certainly don’t have the time to contact 10 lenders and ask them what kind of loan terms they could offer me. Like many of our clients, I rely on my broker to do that legwork for me.”
Matt Goodwin, Director at Goodwin Blain Financial, says the proposed changes could have many negative impacts – from reducing competition between banks leading to higher interest rates, to increasing the cost of borrowing when banks are forced to employ more staff to provide services traditionally done by mortgage brokers.
“Brokers don’t work for banks. We work for the borrowers and do a lot of research on their behalf. There is very minimal difference between our commission from one bank to the next, so we do not have an interest in forcing our clients one way or another. It’s about finding a loan that is most suited to the borrower’s needs, with the best chance of gaining approval to purchase a home. While doing all of this, we also go into bat for our clients to secure the best rate possible.
“We have 30 different lenders on our panel, with some smaller players that offer a very niche service. Often we are able to connect our clients with these banks and help them secure a loan when the major banks have said no. I wouldn’t even be able to count the number of clients who have walked through our doors thinking they can’t get a loan cause their branch has told them no. My favourite part of the job is being able to make our borrowers’ dreams of owning a home a reality when all hope seems lost.
“Some banks literally bank on the fact that people do not want to do research or negotiate for a better loan, which results in the borrower getting a loan that may not be right for them and at rates they should not have to pay.”
Matt says that previous legislative changes have made dishonest dealings in the sector almost impossible, and that no mortgage broking business can survive without a good reputation and long term relationships with clients.
“We have clients who have been with us for many years. They refer family and friends, and that is how our business thrives. I doubt any mortgage broker could sustain a business built on dishonesty. They definitely wouldn’t last long.”
Of trail commissions (payments that the broker receives from the bank for the life of the loan), Matt explains that mortgage brokers are required to continue servicing their clients, at no charge, for the life of the loan.
“We continue to service the borrower throughout the life of the loan. This requires a lot of work on our part and that is paid for by the bank – not the consumer – because we are essentially doing their job for them, while keeping the bank honest to ensure our clients are always getting the best possible deal.
“History shows that rates received through a broker are cheaper than when a borrower deals directly with the bank, and renumerating the mortgage broker does not have any impact on interest rates. All these changes serve to do is remove competition from the market and put the power back into the hands of the big banks – which in turn could actually increase interest rates. It’s really quite concerning.”
To discuss your mortgage with Matt and his team, contact Goodwin Blain Financial on (02) 5104 0355.
For legal advice regarding your property finance, contact Meyer Vandenberg on (02) 6279 4444.
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