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Welcome to the finance update for the week ending 25 March, 2023.
During the week we took a look back at the further erosion of the amount of money lenders will loan to borrowers, broadly known as their borrowing capacity. In February 2022, a couple on a combined annual income of $160,000 with no dependants were able to borrow almost $1,200,000, and yet now, that same couple can only borrow circa $875,000 – that’s a reduction of 27%. So whilst property values may have taken a hit over the past 12 months, it’s not only because people don’t want to buy, it’s also because some people aren’t allowed to borrow the money to buy what they want.
In this week’s newsletter, we look at Best Interests Duty which are the guiding principles mortgage brokers need to operate under.
What is it?
The best interests duty for mortgage brokers is a statutory obligation for mortgage brokers to act in the best interests of consumers, and to prioritise consumers’ interest when providing credit assistance.
These two obligations are collectively referred to as the Best Interests Duty.
Based on the Royal Commission’s recommendations, it aims to align “consumers’ expectation and interest with that of the interest of the mortgage broker.”
How are consumer’s best interests assessed?
ASIC, the industry regulator who’s been tasked with its implementation, released its regulatory guide (RG 273) on assessing the best interests of the consumer by:
The cost of a product—such as interest rate, fees and charges and repayment size—as factors that should generally be prioritised during this assessment; however, cost is not the only matter relevant to whether recommending a product is in the consumer’s best interests.
Where other non-cost considerations affect what is in the consumer’s best interests, brokers should assess whether those considerations or loan features have a realistic possibility of offering the consumer, good value or a net benefit relative to other options.
What does it mean for our clients?
We now operate under an unrivalled Best Interests Duty when providing credit assistance to our clients, which provides yet another compelling reason to use a broker.
This legal duty offers our clients peace of mind knowing that their mwe are legally required to act in their best interests and put their interests first.
Best Interests Duty does not apply to banks!
So whilst we must always act in the best interests of our clients; if a customer goes to a bank directly, then the bank can act in their own interests and not those of the borrower.
Any changes in interest rates from last week are highlighted in orange.
Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.
Standard Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
