Date issued: Tuesday 14 August

Over 90 per cent of Australian home-owners agree that good advice is critical when selecting a mortgage, a new survey shows.

The research, commissioned by CPA Australia, has found that, while banks were the dominant source of advice, with nearly half (46 per cent) of respondents reporting their bank as the most influential in their mortgage choice, many young people are choosing brokers.

35 per cent of those aged under 35 rated their broker as the most influential in their home loan choice (22 per cent overall).

Financial Planning Policy Adviser, Kath Bowler CPA, says brokers are playing an increasingly important role in the mortgage selection process.

‘With younger people choosing non-traditional lenders and advice being rated so highly, it’s critical that standards are in place to ensure consumers are receiving advice appropriate to their needs,’ Bowler said.

CPA Australia notes while some states, such as Western Australia, have codes of conduct for mortgage brokers, there are no consistent requirements.

‘The Government has put a lot of emphasis into consumer protection through the Financial Services Reform Act, but mortgages are outside the regime,’ Bowler said.

The research also revealed those using a mortgage broker borrow more. On average, consumers are borrowing 70 per cent of their home value, but those using a broker borrow nearly 80 per cent of the value.

‘There is a concern that brokers could be motivated to loan more because they are often remunerated based on the amount borrowed. Disclosure of remuneration would help consumers be aware of any incentive brokers have when providing advice. Similarly, disclosure has been a stimulus to improve standards in the financial planning industry,’ Bowler said.

The research was commissioned by CPA Australia to explore current trends and issues in mortgages. It was particularly interested in the role of brokers in the process and the use of offset and redraw facilities.

Key points: trends and issues in current mortgages research

Mortgages generally

• 24 per cent of respondents did not know exactly what the interest rate was when they took out their loan
• less than half (44 per cent) are currently exactly aware of what their interest rate is
• 52 per cent of respondents claim there are definitely not being charged a higher interest rate in order to have a redraw, offset or all in one facility attached to their mortgage
• 69 per cent are regularly making additional mortgage repayments over and above the minimum required, (but only half of those indicated they are increasing their redraw or offset balances)
• existing or past relationships were the number one reason given for selecting a current mortgage (43 per cent), with fees and rates following as the second most popular reason (29 per cent)
• a notable minority of mortgagors (16 per cent) estimated that they borrowed between 91 & 100 per cent of the property value at the time they took it out

Offset & redraw facilities

• 86 per cent of respondents had either a redraw facility, offset account or all in one account attached to their mortgage
• the main reason given for having these facilities was to have access to funds in an emergency (72 per cent), yet only 26 per cent of respondents had actually used the funds for this purpose
• over half of respondents (54 per cent) have indicated they have a redraw facility so they can pay their loan off faster and 69 per cent are regularly making additional mortgage repayments. However, only half of those surveyed have actually increased their redraw facility.
• 64 per cent have used their redraw, offset or all in one for personal reasons, such as to buy personal goods or services, go on a holiday or pay for renovations

Use of Brokers

• 27 per cent of those surveyed used a broker to source their current mortgage. For those aged under 35, this number increases dramatically, with half of those surveyed aged under 35 using a broker
• where people were having difficulty sourcing a mortgage, there were also more likely to use a broker, with 38 per cent of those surveyed using a broker (the average being 27 per cent)
• mortgagors were almost unanimous (94 per cent) about agreeing that ‘getting good advice is critical when selecting a mortgage’
• the average mortgage taken out was 70 per cent of the original value of the property. However, for those that used a broker, they borrowed nearly 80 per cent of the property value.
• despite the increasing trend towards brokers, existing relationships with lenders and bank are still very important, with 43 per cent of respondents selected their product because of existing relationships. Those aged 55+ were the most likely to have pointed to an existing relationship as the reason for taking out their mortgage (48 per cent, compared with 26 per cent for younger mortgagors)

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