Best Interest Duty (BID) for mortgage brokers was introduced as a result of the recommendations from the royal commission into banking.
The two most important points of the best interest duty obligations are
- Conflict Priority Rule – If there is a conflict of interest when providing credit assistance, the mortgage brokers are required to give priority to the consumer’s interests. The mortgage broker must not prioritise their own interest or the interests of the credit providers or third parties
- Anti-avoidance provision – There is also a ban on entering into or carrying out a scheme that is designed to avoid the application of best interests obligations, as well as the ban on conflicted remuneration.
The implementation of best interest duty obligations is NOT based on prescriptive steps. They are based on high-level principles leading to loopholes.
Following are the important principles that a mortgage broker must follow:
- Any product recommended by a broker must be in the consumer’s best interests, and the reasons for this conclusion should be recorded and explained to the consumer
- To the extent that it is in the interests of the broker or a related third party to provide certain credit assistance, that credit assistance may only be provided if it is also in the consumer’s best interests
Current NCCP obligations already require the mortgage broker to maintain documentation to prove compliance with the above points. It is difficult to understand how the above points from best interest duty obligation are making mortgage brokers more accountable than they already are.
What is really the best interest of the borrower?
The implementation of best interest duty is not well defined. For best interest duty to be effective, the following issues must be addressed
- Variation in commission amount from lender to lender
The lenders offer different commission amounts to mortgage brokers, therefore, creating a conflict of interest for mortgage brokers. While the best interest duty obligation expects the mortgage broker to act in the best interest of the borrower, the implementation of the obligation has loopholes using which a mortgage broker can get away by recommending a mortgage product that gives them the highest compensation
- Consistent access to mortgage products for all mortgage brokers
The lenders apply additional restrictions on mortgage brokers. The lenders require a mortgage broker to be accredited with them before a mortgage product from a lender can be recommended to a borrower. The accreditation process, unfortunately, allows lenders to apply additional rules forcing brokers to generate a certain volume of mortgages over a pre-defined time frame to maintain their accreditation etc. Some large lenders also provide quick service to mortgage brokers who generate more business. As a result, a tiered system is created and mortgage brokers end up with preferred lenders and limited access to mortgage products resulting in poor customer outcomes.
FairBroker® solves the problem that the best interest duty regulation cannot solve. On FairBroker®, the borrower is allowed to create a request seeking a mortgage anonymously. This request is then shown to thousands of mortgage brokers encouraging them to offer mortgage offers from a wide range of lenders. On FairBroker®, a consumer on average gets 60 to 70 mortgage offers from various lenders.
Each mortgage offer has the commission details earned by a mortgage broker. This transparency with information puts the consumer in charge. The consumer can now compare and select the best mortgage deal in Australia.
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.