ASIC does not require mortgage brokers to recommend the loan with the lowest advertised interest rate in every case. Its guidance says brokers must consider cost, investigate lower-cost options and support any higher-cost recommendation with evidence that it is in the borrower’s best interests. If a cheaper product is unavailable or does not meet the borrower’s needs, the broker should explain why and set out the limits of the available alternatives.
What ASIC’s guidance requires brokers to consider
ASIC’s Regulatory Guide 273 (RG 273), issued on 24 June 2020, explains ASIC’s view of the best-interests duty for mortgage brokers and other relevant Australian credit licensees under Part 3-5A of the National Consumer Credit Protection Act 2009. The guide is principles-based: it describes how ASIC views the obligations, rather than prescribing minimum conduct standards or creating additional obligations. ASIC’s announcement said the best-interests duty and conflict priority rule took effect on 1 January 2021. ASIC Regulatory Guide 273
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RG 273.54 says failing to consider cost and investigate the lowest-cost options available may suggest non-compliance. A recommendation for a higher-cost loan needs supporting evidence showing why it is in the consumer’s best interests. RG 273.55 adds that it is unlikely to be in a consumer’s best interests to recommend applying for a loan when a cheaper loan could be recommended that also meets the consumer’s non-cost needs and objectives.
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Repair Windows errors before they cause bigger problemsFix Now →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →This is not a rule that the lowest nominal rate always wins, nor does choosing a higher rate by itself establish a breach. The reason for the recommendation and the borrower’s circumstances matter. ASIC Commissioner Sean Hughes said when announcing the guide: “Consumers rightly expect mortgage brokers to act in their best interests and ASIC’s guidance describes how we expect them to do so. Under these new obligations, let there be no doubt – the consumer must always come first.” This was a statement in an ASIC media release, not statutory text. ASIC’s 24 June 2020 announcement
Why the lowest rate may not be the lowest-cost or best-fit loan
Interest rate is only one part of a loan’s cost and value. RG 273.56–58 explains why a comparison should take account of a borrower’s circumstances and the loan’s features and charges.
- Fees can change the total: Annual or establishment fees can make a package more expensive even if its interest rate is lower.
- Features can have value: An offset account or redraw facility may help some borrowers save interest or manage cash flow. A feature’s benefit may outweigh its cost for a particular person.
- Refinancing has upfront expenses: Switching costs can exceed the savings from a new loan. It can help to establish when expected savings would overtake those expenses.
These factors do not make a higher-rate loan automatically preferable. They are reasons to compare likely overall cost and fit rather than treating the advertised rate as the whole answer. RG 273, paragraphs 56–58
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When a lower-cost loan may not be available
A borrower may not qualify for the lowest-cost product. RG 273.59–61 recognises that credit risk, the amount sought, lender credit policy, pricing practices and risk appetite can affect access. The guide gives examples such as lenders’ mortgage insurance, a required history of repeated savings, and whether a lender accepts a guarantee.
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Repair common Windows errors and clear accumulated junk for a smoother, more stable PC - no reinstall needed.Free scan · no reinstallWhere a lower-cost product is unavailable, ASIC says the broker should explain why, describe the limitations of the available options and still consider the cost of options reasonably likely to be approved. That explanation should connect the eligibility issue to the borrower’s situation, rather than simply asserting that the recommended loan is the best option.
How to assess the broker’s comparison
ASIC’s Moneysmart guidance encourages borrowers to decide on must-haves and nice-to-haves before meeting a broker, then ask how each loan works, what it costs and why it fits their best interests. It advises brokers to present more than one option. ASIC Moneysmart: Choosing a home loan
Compare the options across the factors that matter to your circumstances:
- Total cost, including the rate, fees and relevant charges.
- Whether you meet the lender’s criteria and how likely approval is.
- How well the loan matches your requirements and objectives.
- Whether offset, redraw or repayment flexibility is useful to you, and how it affects likely costs.
- For a refinance, how expected savings compare with switching expenses and when savings would exceed them.
- Any limitations of the recommended option.
Useful questions to ask include:
- “What does this loan cost overall, including fees?”
- “Why is this option a better fit for my needs than the lower-rate loan?”
- “Is the lower-cost product unavailable to me? If so, why?”
- “What are the limitations of the available option?”
- “How do the offset, redraw, repayment flexibility or other features affect my likely costs?”
- “If refinancing, when would the savings exceed the refinancing costs?”
How this duty differs from responsible lending
The best-interests duty operates alongside, but is distinct from, responsible-lending obligations. ASIC says credit licensees must make reasonable inquiries about a consumer’s financial situation, requirements and objectives; take reasonable steps to verify the consumer’s financial situation; and make a preliminary or final assessment that a contract is “not unsuitable,” depending on the actor. The best-interests duty and the “not unsuitable” assessment are not the same legal test. ASIC: Responsible lending
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What ASIC’s consumer research found
ASIC’s 2019 research followed more than 300 consumers taking out a home loan and surveyed another 2,000. In that research, one in five consumers believed they could have obtained a better interest rate or were unsure whether they had received a good rate. ASIC also reported that 69% of consumers who went directly to a lender took out a loan with a lender they already had a relationship with. These are findings from ASIC’s 2019 research, not current prevalence estimates or evidence that a particular broker acted improperly. ASIC’s 2019 research release
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The same release noted inconsistent presentation of loan options and that consumers visiting brokers expected them to find the “best” home loan. Commissioner Sean Hughes said: “A home loan is one of the most important financial commitments a consumer will make. Lenders, brokers and aggregators must step up to make it easier for consumers to meaningfully compare loan options and for brokers to communicate how a home loan option has been selected for them.” This, too, was a media-release statement, not statutory wording.
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