With the current Royal Commission proceedings playing out, it’s clear the spotlight on the financial services industry is shining bright. Consequently, recent conversations in the media about Mortgage Brokers, what they do and how they do it, are not always presented with reasonable accuracy or alternatively are based on unqualified assumptions.
We value the opportunity to be transparent about our industry whenever we can. Part of that transparency also warrants that we address some of the prevailing myths about the mortgage broking industry.
There is a school of thought that suggests a broker will convince their client to take out a greater loan than needed, given that the higher the loan amount, the higher the commission payment they will receive. Whilst this may seem reasonable at face value to the outsider, the reality is a broker must present a valid justification for why a given loan amount is being sought, not only in the compliance documentation that is prepared prior to submission (that the client must sign off on), but to the lender as well.
This also assumes that the average client is so uninformed and naïve that they would not question if a Broker suggested applying for an over-inflated arbitrary loan amount. In our experience, mortgage seekers are well informed and, in most cases, do their own due diligence.
Its not unreasonable to suggest , there may be Brokers who don’t make a concerted effort to offer an ongoing customer care program, but the reality is that it’s those who are less likely to enjoy longevity in the industry. A quality mortgage broking professional will contact their clients on a regular basis throughout the life of the loan – whether it be through annual phone calls, regular newsletters or social media campaigns. The Mortgage Brokers who enjoy a solid business of repeat and referral clients take their after-care programs seriously and cultivate long-lasting relationships with their clients.
There is perhaps no greater paradox than this often-perpetuated myth. The theory behind this is that a given Broker will be more likely to present their favoured lenders based on their own biases – a highly unlikely scenario. Most Brokers will have an extensive panel of lenders available to them that a client will have access to, unlike a financial institution which only has their own products to offer.
Furthermore, not all customer’s scenarios are the same and therefore their requirements and objectives will dictate where a loan is placed, and the product chosen. But perhaps most importantly, bank policy is the most overwhelming mitigating factor in where an application may be lodged and as such it’s highly unlikely a Broker will submit a loan to a lender solely of their choice. The variables that go into making a loan viable are much more complex than that.
You would be hard pressed to find a Broker that uses this strategy as their business model. First and foremost, the client is the main driver of what loan product is chosen. The customer’s choice is primarily based on what is the most competitive product currently available that aligns with their lending needs. A Mortgage Broker must produce detailed compliance documentation, outlining why a lender and product were selected with the clients signing off in acknowledgment. Factoring bank policy into the equation, also clearly demonstrates there are so many moving parts to presenting a loan application to a lender that it’s condescending to not only the Broker but also the client to think that Broker’s commission rates are the mitigating factor as to where the loan ends up.
We welcome regular scrutiny of the mortgage broking industry to maintain the integrity of the profession and its members, and to ensure the best consumer outcomes as a result.
However, it’s also important for us to debunk the prevailing myths that have long circulated as the majority of Mortgage Brokers are dedicated and highly trained professionals, providing a valuable service to the many mortgage holders in need.