After the rate cut: What should brokers be doing and expecting?

Defining Best Interest Duty in the context of mortgage needs to be cleared up

After the rate cut: What should brokers be doing and expecting?

So the country recently experienced a historic rate cut, what now for brokers and the broking industry? What’s the best thing brokers should do to help consumers maximise its benefits? What does the near future look like for the industry?   

Speaking to MPA, Connective executive director Mark Haron said mortgage brokers should be across what banks are doing in response to the reduction, whether they’ve passed the rate cut to consumers in full or not. By doing so, brokers can find more competitive banks that can better look after their customers.

“A good tip is to encourage customers to maintain their mortgage repayments even when the rate goes down. If customers stick to current repayments, they will potentially pay off their loan sooner and save money,” Haron said.

However, while the rate cut is vital to stimulate refinancing activity and increase the interest of homebuyers and upgraders, APRA’s change to the serviceability rate “will have a much more significant impact on the economy than the interest rate cut by the reserve bank.” And with the introduction of the First Home Loan Deposit Scheme, consumers looking to get into their first home have better access to finance. 

“The Coalition will continue to support the National Housing Finance and Investment Corporation, which will hopefully have a positive impact on housing affordability for consumers. Brokers are very crucial to this sector with over 80% of Homestart and Keystart loans written by mortgage brokers,” Haron said.

“The Coalition also intends to continue lowering the corporate tax rate for SMEs with a target of 25% by 2021-22.”

A clear definition
As a result of the federal election, the mortgage broking industry has an opportunity “to take firm steps to secure long-term sustainability about the issue of home ownership in Australia,” according to Haron.

Resolving what exactly Best Interest Duty should be in the context of a mortgage customer is something that the broking industry needs to clear up over the near term. Having been developed in the context of financial planning, with mortgage brokers and financial planners applying different ways of dealing with customers’ finances, Best Interest Duty carries a complex definition.

“Agreeing a workable construction of Best Interest Duty that will, in practice, deliver high levels of protection for consumers and enable brokers to do their jobs to the highest standards has to be a key priority going forward,” Haron said.

“It is important to note that increased competition among lenders and the entry of smaller players to the market, offering consumers more value, choice, loan features and access, has been directly attributed to the rising use of brokers.”