Australia’s peak body representing finance brokers has urged borrowers to avoid choosing a mortgage based on incentives offered by lenders, as it could lead to unsuitable loans.
Executive director of the Finance Brokers Association of Australia (FBAA) Peter White, says reports that incentives such as cash discounts and overseas trips are being dangled in front of customers deemed to be low risk or high-net-worth borrowers, are worrying.
He said borrowers with job security and good credit are being targeted.
“As nothing is free these days, banks that offer incentives to borrowers need to be careful that they are not overlooking what’s in the best interests of their customers,” he said.
“A mortgage is a long-term commitment and it is foolish to lock yourself into a contract for such a large amount of money for the sake of a short term financial benefit.
“You also need to read the fine print as you may be agreeing to be inundated with emails for insurances, financial planning, or other cross-promotional services by the lender.”
He said while offering incentives is not necessarily unethical, it could be considered a grey area.
“ASIC and Treasury via the Minister for Revenue and Financial Services are looking at this right now under the NCCP, as incentives potentially put at risk consumers’ best outcomes.”
He also questioned the need for lenders to go down this route. “If the lender has the margin for incentives like this, you’d naturally ask why they can’t provide a lower interest rate or other long-term benefits.”
Mr White says the practice is yet another reason finance brokers now arrange over half the mortgages in Australia.
“Finance brokers know the market and can provide an expertise to ensure that the loan is not unsuitable for the borrower.
“When you use an industry-accredited FBAA broker, you are also protected by professional indemnity insurances and dispute schemes.”