The Productivity Commission has raised concerns about mortgage brokers as part of its report on competition in financial services.
The commission says some brokers are not always acting in the best interests of consumers are instead being biased towards the banks that pay them.
While saying the system is not completely broken, the commission says action should be taken now to keep things on the right track.
“From a relatively small industry in the 1990s, mortgage broking has grown such that just over 50 per cent of all new home loans now originate through a broker,” the PC report said.
“While enabling ready comparisons between a selection of home loan providers and reducing consumer search costs, mortgage brokers do not consistently get lower home loan interest rates for consumers than would be available to the consumer by going directly to the provider.”
To fix the problem of bias, the commission recommends that the Australian Securities and Investments Commission put a clear legal duty on mortgage aggregators owned by lenders to act in the consumers’ best interests.
“Such a duty should be imposed even if these aggregators operate as independent subsidiaries of their parent lender institution, and should also apply to the mortgage brokers operating under them.”
“While there is a strong in-principle case for a similar duty of care to apply to all brokers, it should be in the first instance applied to lender-owned aggregators, since this is where the potential for conflicts of interest is greatest,” the report said.
“Mortgage aggregators and brokers that are owned by lenders should consequently be required to have a duty to act in consumers’ best interests.”
Putting the legal onus on brokers to act in the best interests of consumers is something the industry should get behind wholeheartedly.