Insights for consumers
Consumers may complain to FSCL when they feel their mortgage adviser has not arranged the best deal for them. A mortgage adviser has a duty of care when advising a consumer and working on their behalf. They must make reasonable efforts to arrange lending that meets the consumer’s needs. However, a mortgage adviser cannot guarantee that all the consumer’s requirements will be met. This will depend on whether lenders are prepared to offer finance on terms the consumer wants. A mortgage adviser is not responsible for lender policies, the pricing of lender products, or lender decisions on loan applications. Further, a mortgage adviser cannot predict what interest rates will be in the future.
What happened?
In late 2023, Thomas met with a mortgage adviser to discuss getting finance to buy a section and build a house on it. At that time, Thomas had a home with a mortgage to a bank. The loan to the bank was $440,000.
In January 2024, the mortgage adviser approached various lenders about Thomas’s application. On 5 February 2024, Thomas’s existing loan came off its fixed interest rate, and went on to the bank’s floating rate.
One lender was willing to provide the finance for the construction project and refinance Thomas’s existing loan.
In March 2024, the new lending had been put in place. The refinanced loan had a fixed interest period of one year.
In August 2024, Thomas’s car was stolen, and he approached his mortgage adviser to see if he could get a loan top-up from his lender. The mortgage adviser contacted the lender, who declined to provide further funds. The lender said that a top-up would be outside their lending criteria. Thomas later approached the lender directly for a top up loan, and a personal loan was approved.
This event caused Thomas to think his mortgage adviser had not been doing a good job for him. Some of his friends told him they had been able to get better lending deals than he had. Thomas reviewed all his dealings with his mortgage adviser and, in November 2024, he complained:
- the mortgage adviser should have arranged for the interest rate on his original loan to be refixed from 5 February 2024 until the new lending came through
- his friend had been to get a 1% cashback with a different bank however the mortgage broker was only able to get him an 0.8% cashback
- his new lender’s cashback period was four years, however other lenders had three year cashbacks
- the mortgage adviser had fixed the interest rates on the refinanced loan for “too long”.
The mortgage adviser did not agree that he had done anything wrong, and Thomas complained to FSCL.
What was FSCL’s view?
We reviewed the mortgage adviser’s full advice file for Thomas. It appeared to us that the mortgage adviser had done a good job.
Fixing the interest rate while waiting for the new lending to come through
Thomas thought the mortgage adviser should have arranged for the interest rate on the loan with his old bank to be refixed on 5 February 2024 until the loan was refinanced. We did not agree. It is not normal practice for lenders to fix the interest rate on a loan when they are aware the loan may be repaid during the fixed rate term. Thomas’s old bank’s shortest fixed rate term was six months. If a loan is repaid or refinanced within a fixed rate term, the borrower may have to pay a significant break cost. Break costs cannot be calculated in advance because the calculation depends on knowing the date the borrower will repay and the interest rates applicable at that future point in time. These factors are not known in advance. We would not expect a mortgage adviser to recommend fixing an interest rate when a loan is to be refinanced within weeks.
Terms of cashback
We noted that Thomas was aware of the terms of the cashback the new lender had offered. Further, the mortgage adviser told the new lender about Thomas’s request for a cashback on better terms, but the lender declined. Thomas accepted the cashback on the terms offered by the new lender. A mortgage adviser cannot make a lender offer a cashback on different terms. Lenders set their own pricing, and this is not a matter within a mortgage adviser’s control.
Interest rate fixed for “too long”
Thomas’s belief that the mortgage adviser had arranged for the interest rate on the refinanced loan to be fixed for “too long” arose out of his concern that interest rates declined after he took out the loan. He appeared to believe the mortgage adviser knew what would happen to interest rates in the future. However, interest rates fluctuate, and it is not possible to predict future movements in rates. In having the fixed rate for the year, Thomas had the benefit of certainty about what his repayments would be over this period, and he did not have to worry about the possibility of interest rates increasing during this time.
Further, when Thomas raised the issue in November 2024, the mortgage adviser carried out the calculation but did not recommend breaking the loan at that point. While it may have been possible to get a lower interest rate, the break fee meant that it would not be worthwhile. The mortgage adviser recommended waiting until Thomas’s fixed rate period expired in March 2025, given there were some indications the Reserve Bank may reduce the official cash rate in February 2025, which could lead to lower interest rates. If this occurred, Thomas would gain the benefit of lower rates without having to pay a break fee.
The top up application
Thomas was concerned the mortgage adviser had not been able to get him a top up loan when his car was stolen, but he was later able to get a loan by going directly to the lender. The mortgage adviser showed us that he had contacted the lender seeking a top up, but the lender said the application did not meet their credit criteria. While the lender changed their mind several months later and approved a personal loan, we could not say that the mortgage adviser was responsible for the lender’s initial decision to decline.
What was the outcome of FSCL’s investigation?
We explained our views to Thomas, and he decided to withdraw his complaint.
