On 4 February 2019, the final report of the banking royal commission was delivered.
Commissioner, Kenneth M. Hayne, made recommendations that relate specifically to the home loan mortgage industry. Importantly, the Commissioner has suggested changes that seek to strengthen existing regulations and promote cultural change.
These recommendations impact everyone from mortgage brokers to banks and property owners, and they concern:
- The payment of fees
- The suitability of loans and lending criteria
- The access to services.
At 530 pages, the report is not exactly light reading material. Luckily, we’ve done the hard work for you and come up with a list of 5 key takeaways.
1. Australian home loans will continue to be more strictly tested for suitability
This recommendation is an important one. In order to determine the suitability of a home loan for a customer, a set of additional procedures will need to be followed. The procedures concern the information gathered to ascertain a borrower’s circumstances. This puts a structure in place where a consumer needs to prove they can pay the borrowed amount back.
2. More transparency around the relationships between borrowers, lenders and mortgage brokers
The need for more transparency around the relationships between borrowers, lenders and mortgage brokers has been established. As a result, ‘trail commissions’ and other forms of lender-paid commissions are set to be banned from 1 July 2020. This aims to remove the potential for conflicts of interest between brokers and consumers.
Instead, customers will be required to pay an upfront fee to their bank or mortgage broker when a loan is arranged. This fee is likely to be added to the total of the loan requested, with no additional ongoing fees.
3. Emphasis on the duty of care of mortgage brokers
The Commissioner noted the necessity for increased clarity around duty of care between borrowers and mortgage brokers. What this means is that mortgage brokers are required to act in the best interests of their client, and provide them with the right advice.
4. Changes to reporting obligations for lenders and mortgage brokers
The Commissioner recommended that all Australian Credit Licence (ACL) holders should be required to report on any licensed mortgage broker they suspect has engaged in misconduct. Particularly if the misconduct involves advice given to a consumer.
If misconduct is identified, the ACL holder it’s been discovered by needs to make enquiries about the extent of it and, where evidence exists, notify the affected clients and suggest a solution for them.
5. More inclusive practices for all Australians
Significantly, the Commissioner identified that not all Australians have equal access to financial services. Consumers may not be able to use internet or telephone banking, they may live at a distance from providers, have communication difficulties where English is a second language, or not be able to produce necessary documents for a loan.
Steps, outlined in the final report, have been determined to make sure that financial services are accessible for everyone.
If you’d like to know more about these changes, and whether they affect you, get in touch with us today. Whether you’re an investor considering to enter the market before the proposed changes to negative gearing take place, a first time home buyer, or simply want to know more about the property market — Industry Insider is here to help.