Unbiased mortgage advice is when a party giving advice is not advantaged by the advice given. While every borrower, by default must get unbiased mortgage advice, it is rarely the case. In this post, we will explore the various factors that influence the Mortgage Broker and how to get unbiased mortgage advice.
Mortgage advice is regulated in Australia. Anyone giving mortgage advice should be qualified and should have an appropriate license before giving any mortgage advice.
Even with the regulations around mortgage advice, there have been a growing number of cases of conflict of interest. Royal Commission into Banking and Productivity Commission did a detailed analysis of the current situation in Australia. Following are the main reasons for the lack of unbiased mortgage advice.
Variable commission structure
Lenders pay commission to mortgage brokers for settling a mortgage with them. There are 2 types of commissions that a lender pays – Upfront Commission and Trailing Commission.
Upfront Commission is paid after a loan is settled. The upfront commission is a percentage of the loan amount. For example, if you borrow $500,000 from lender A and if the lender A upfront commission is 0.65% of the loan amount, the mortgage broker gets paid $3250.
The most important number in the calculation is 0.65% by lender A. The conflict arises if lender B offers 0.7%. In such a case, the mortgage broker will get an upfront commission of $3500 from lender B instead of $3250 from lender A, thereby influencing the Mortgage Broker to recommend lender B to the borrower.
A similar conflict exists with the trailing commission as well. Post Royal Commission into Banking final report, Government announced that it would ban trailing commission. Amid a concerted campaign from the mortgage broking industry, the Government has relented and has set up a checkpoint in three years time to relook at commission structure.
Lenders offer various incentives to mortgage brokers to promote their products. Incentives such as expensive gifts, holidays etc. for meeting certain volume targets. This can create a conflict of interest situation for a mortgage broker. These incentives are now banned as a recommendation from the Royal Commission into Banking
Access to mortgage products
Mortgage Brokers, apart from getting the required qualification(CertIV) are also required to get accredited with lenders. Mortgage Brokers also use a software called Aggregator which provides them access to a panel of lenders. Some lenders on the aggregator panel allow Mortgage Brokers to be automatically accredited while others require Mortgage Brokers to go through a process/training before they are accredited to sell mortgages from that lender. Simply because a mortgage broker has access to an aggregator with 35 lenders does not necessarily give the mortgage broker access to mortgage products from all 35 lenders. Even if the Mortgage Broker gets accreditation with 35+ lenders on the aggregator panel, there will still be 100+ mortgage lenders outside the aggregator panel.
One of the most important points to consider is that a Mortgage Broker does not have access to all the mortgage products from all the lenders in Australia. Even a good-intentioned Mortgage Broker cannot claim to have recommended the best mortgage product to meet your requirements, simply because the Mortgage Broker does not know about the mortgage products that he does not have access to.
The last but very important criteria are the operational constraints. Lenders appoint Business Development Managers(BDM) who directly deal with Mortgage Brokers. BDM’s have a considerable influence and can fast track applications or influence the outcome of mortgage applications from some Mortgage Brokers when they know the Mortgage Broker has provided considerable business to the lender and is likely to continue to provide more business in the coming days. This relationship can influence the recommendation that a Mortgage Broker makes to the borrower. Mortgage Brokers require quick settlement of mortgage and commission to support their cash flow.
How can FairBroker® overcome biased mortgage advice?
On FairBroker®, every Mortgage Broker has an equal opportunity to compete to provide the borrower with the best Mortgage Product that is not unsuitable to a borrower’s situation. We provide free access to every qualified and accredited mortgage broker interested to use FairBroker® platform. Competition between Mortgage Brokers and Lenders results in the best outcome for the borrower. Since a Mortgage Broker on FairBroker® does not know the offer given by another Mortgage Broker, unless they provide the best mortgage offer, they are unlikely to win your business. When they compete, the lender commission or BDM relationship will not be the deciding factor in their recommendation.
Since FairBroker® has Mortgage Brokers with access to various aggregator software, the coverage of lenders and mortgage products is unparallel to any other comparison site or individual mortgage broker. These features of FairBroker® allows us to help you find an unbiased fair Mortgage Broker.
It is our mission to ensure transparency and the best outcome for the borrower and hard-working mortgage broker. Looking for a mortgage or looking to refinance your existing mortgage? Create a deal request on FairBroker® and get unbiased mortgage advice and assured commission share from mortgage brokers.