Competition spotlight falls on mortgage advisers

Thursday, 16 May 2024

The majority of people buying a home now use a mortgage adviser to find a home loan.

Mortgage advisers came under the spotlight at the Commerce Commission’s banking competition conference in Auckland, accused of not driving mortgage interest rate competition among banks.

Mortgage advisers have risen to become a powerful force, arranging 66% of new home loans for homebuyers through banks and other lenders.

However, the Commerce Commission has concerns about how they are operating, and is developing a set of recommendations for change using Australian regulation as a model.

In Australia, mortgage advisers have to be much clearer in telling customers about the limitations of their services by providing customers with a “negative” list of banks and other lenders that are not on the “panel” of lenders they can recommend loans from.

Australian mortgage advisers also have to have a panel of lenders that is representative of lenders in the market. In addition, they can only give advice to members of the public, if their panel of lenders enables them to act in the clients’ best interest.

Mortgage advisers pushed back, telling the commission that importing rigid Australian rules would just make it harder for Kiwis to get mortgage advice.

However, mortgage adviser Sarah Curtis supported the introduction for negative lists in New Zealand to help the public understand the limits of advisers’ services.

“It would be something we would be completely comfortable with,” she said.

But, she said, banks should also be forced to tell people seeking home loans a similar warning that there may be loans offered by rivals that might better suit their needs.

Finance and Mortgage Advisers Association of New Zealand, Leigh Hodgetts was concerned that the Australian model the commission was eyeing was too prescriptive, and would make it harder for mortgage advisers to give advice to people.

The Commerce Commission is conducting a market study into competition in the retail banking sector.

“I would hate us to go down that route here,” she said.

Hodgetts said copying Australia’s model would be “trying to fix something that is not broken at all”.

Some would like to see the commission go further, with Simplicity KiwiSaver chief executive Sam Stubbs saying the commission should recommend law change to require advisers to act in the best interests of their customers.

The commission is also concerned mortgage advisers aren’t doing enough to drive bank competition on loan rates, and are not as focused as their clients on getting the cheapest home loans they can.

The commission’s draft report, published in March, said mortgage advisers weren’t getting their borrowers lower rates than banks give borrowers who come to them directly.

However, advisers, who were angered by that report, said often other factors, like how much banks would lend ended up being more important to clients.

Kiwibank has been accrediting more mortgage advisers to sell its loans, but there is frustration from some advisers who have not yet been able to get that accreditation.

And the advisers attending the conference said they were successful in getting banks to match rival banks’ lowest home loan rates.

The commission remains concerned that mortgage advisers’ incentives, including being paid commission by lenders, aligned their interests with lenders, not homebuyers. In some cases their incentives could be hindering some people from switching their home loans to rivals.

Advisers are paid commissions of 0.2% to 0.8% of the value of mortgages they sell, but to protect that investment banks impose commission “claw back” periods of up to four years meaning advisers would not be incentivised to move their clients to loans that might be better for them during that time.

Mortgage advisers were vocal at the conference on banks’ failure to invest enough in technology. Advisers were spending hours on each loan sending emails and making phone calls to under-resourced broker units at banks because banks lacked well-functioning online systems advisers could use.

It could take three or four weeks for banks to approve loans, the commission heard.

The commission heard in Australia, banks had invested in much better systems.

There was also a particular grumble from advisers about Kiwibank, which is expanding the number of advisers it “approved” to use its loans, but which has so far not given that approval to many others.

Kiwibank hit back saying it had approved nearly 480 advisers in the last 12 months.