Commission deputy chairwoman Anne Callinan speaking at the Financial Advice New Zealand (FANZ) national adviser conference says the recommendation was qualified “where possible”.
She says it might have been lost in translation. “The commission appreciates it is not always possible to present three options.”
“Obviously, the characteristics of a particular buyer or borrower or time constraints might mean this isn’t feasible in a given case.”
Callinan says the commission is not suggesting that advisers “should not be forced to present three offers fullstop.”
This is despite a February letter sent by the commission to the Finance and Mortgage Advisers Association of New Zealand (FAMNZ) requesting mortgage advisers provide clients with a least three “actual offers” to consider and “to submit multiple applications on behalf of their clients”, or face “government intervention”.
The directive came after last year’s personal banking competition market study. The commission claims by mortgage advisers obtaining three different completed offers for borrowers, it will promote price competition and choice for home loans.
Mortgage advisers took exception to this saying it is a waste of time and money and only leading to further clogging up lenders’ home loan application processing times.
FAMNZ will present a solution to the commission within the next few weeks. Country manager Leigh Hodgetts is hopeful any agreement satisfies the commission and avoids any legislation about how mortgage advisers do their job.
It was also revealed by Callinan the commission’s real target is the big banks.
One of the overarching problems identified with the banking sector was the lack of investment in systems and processes for mortgage advisers to submit multiple applications on behalf of their clients and to make it more efficient for lenders to quickly process loan applications.
“We considered this needed to improve to reflect a more competitive market,” Callinan says.
An overnight turnaround on this was not the commission’s expectation, but it was envisaging the New Zealand Banking Association would work with the mortgage advice sector on opportunities to invest in better IT systems that will help everyone.
On the three offers to be presented to clients, Callinan says this “proved to be a remarkably controversial recommendation” and the commission has had many interesting discussions with stakeholders in the industry.
“We appreciate it is not always possible to present that many options and we understand there are practical issues with getting loan application systems up to a level of standardisation and automation where it is feasible to process multiple offers for clients.
“And we do appreciate there are usually tight time constraints at play where people seeking to buy a home are understandably anxious about getting the applications accepted.”
The commission says, however, it is entirely reasonable for consumers, who are often making the single biggest financial commitment of their lives, to be presented with a few detailed options and for the independent adviser to explain which option is best for them and why.
“We think this is not only good for consumers but will enhance the reputation of mortgage advisers,” Callinan says. “Those who come to the party will be placing stronger pressure on the banks to compete harder.”
She says the commission has been having good discussions across the sector about how its recommendation on offers to clients can be implemented and is confident the industry can come up with a means of addressing its concerns. “We have a mutual interest here in promoting better options in consumer choice.”
From here, she says mortgage advisers are “uniquely placed to give clients real choice and play a major role in driving stronger competition between banks”.
A solution to meet the commission’s original demand is expected within two to three months, according to Squirrel Mortgages, whose founder John Bolton has been involved in the talks.
“It is unlikely anybody can argue the commission’s recommendation on three offers would not be anti-competitive, David Cunningham, Squirrel Mortgages chief executive said.
He says the fact is mortgage advisers are engaged with different lenders on an almost daily basis as part of settling deals and they are constantly reviewing different bank credit policies to help them understand who is prepared to lend and at what rates.
“At any given time, advisers know where pricing is sitting across the market and this informs their recommendations to clients in terms of which lender to submit an application to.”
Clients don’t need three completed offers. They need one and it has to be the right lender for them, Cunningham says.
