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Mortgage brokers face reforms

In the immediate aftermath of the Hayne Royal Commission, there was strident criticism of the recommendations around mortgage broker reform on the basis it would lessen competition within the home lending market. Despite those protests, the Federal Government now seems committed to pushing through reforms the Royal Commission recommended.

Consultation has recently closed on the Government's proposal to introduce a best interest duty for mortgage brokers and reform their remuneration regime. Here, partner Langton Clarke discusses the proposed reforms.

The role of mortgage brokers

The role of mortgage brokers in the Australian home loans sector was the subject of wide and varied discussion throughout the Royal Commission. Many of us have used a mortgage broker to source a loan, but generally we do not pay the broker for their service. Instead, lenders who ultimately provide the loan usually pay mortgage brokers by way of a fixed fee or a commission based on the size of the loan made.

Proposed reforms

The Royal Commission's final report was critical of this model and the Government has responded by proposing reforms to—

  • introduce a duty for mortgage brokers to act in the best interests of consumers, and
  • address conflicted remuneration.

The reforms are acutely consumer focused and reflect what the financial planning sector experienced several years ago: advice provided by mortgage brokers must serve the consumer's interest first and foremost, and where there is a conflict of interest, brokers must give priority to consumers.

And just like their financial planning cousins, brokers will also be prohibited from receiving conflicted remuneration which is any benefit (monetary or otherwise) given in circumstances where it could reasonably be expected to influence the assistance being provided by the broker to a consumer acquiring a loan.

The prohibition extends to both accepting and giving conflicted remuneration and covers intermediaries like mortgage aggregators that sit between brokers and lenders.

What's next?

We expect the reforms to pass into law in essentially the form proposed, and we will let you know when the laws are passed.


Langton Clarke

Langton Clarke


Contact McMahon Clarke

T +61 7 3239 2900
A Level 7, 100 Creek Street, Brisbane Qld 4000