A broker who asks only about your income, deposit and the property is shopping on price. One who asks what you plan to do after this loan is doing the job, because the answer changes which loan and which structure is right.
There’s a version of mortgage broking that is just shopping. Client comes in, broker asks how much they want to borrow, broker runs it through the software, broker picks the lowest rate that says yes, done. It’s fast and it’s how a lot of loans get written. I think it’s a bad service, and I think the sign of it is a broker who never asks what you’re planning to do after this loan.
Which question changes the answer?
“What’s the plan for the next five years?” is the question (I’m not being nosy, the answer changes which loan is right).
Someone buying a first home who intends to stay ten years wants something different from someone buying a first home who intends to keep it as an investment when they upgrade in three. The second person needs a loan structure that survives the change of purpose without a refinance: an offset account rather than redraw, because money pulled back out of redraw on a property that becomes an investment creates a tax mess that money sitting in offset doesn’t. That’s a structural decision at settlement, and it’s invisible if the only question asked was “how much”.
Someone self-employed whose business is about to move from sole trader to company wants a lender that’ll read the new structure’s income next year, not just this year’s. Someone planning a second property wants their first loan set up so the equity can be released cleanly, which sometimes means passing on the lender with the sharpest rate today for the one whose policy on equity release is cleanest in two years.
None of that is exotic. It’s the normal shape of people’s lives, and the only way a broker finds it out is by asking.
Why price-shopping is tempting
Because it’s what clients ask for. “What’s your best rate” is the first sentence in most first conversations, and a broker who answers it directly feels responsive. Also because it’s quicker. A strategy conversation takes a while. A rate lookup takes almost no time.
And because the software rewards it. Broker software spits out a list of loans your file fits, and it’s easy to read that list from the lowest rate down. The list doesn’t know that you’re planning to have a baby next year, or that your parents might need to move in, or that the business is going to need a $200,000 equipment loan in 2028 and the home loan structure should leave room for that.
What the duty actually asks for
Since 1 January 2021 brokers have had a best interests duty. ASIC‘s guidance on it is Regulatory Guide 273, and the gist is that a broker has to recommend the loan that’s in the client’s best interests, which is a higher bar than “not unsuitable”. Moneysmart‘s plain-English version tells borrowers a broker should present more than one option and explain why the recommended one is in your best interests.
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You can’t explain why a loan is in someone’s best interests if you don’t know what their interests are. Price is one of them. It’s rarely the only one, and over the life of a home loan it’s often not even the biggest one.
What a strategy conversation covers
The four steps on our site are consultation, strategy and research, application, then settlement and ongoing support. The second one is where this lives. It’s less formal than it sounds. It’s mostly questions.
Where do you see yourself living in five years? Is this property a forever home, a stepping stone, or a future investment? Any big income changes coming: a promotion, a business, parental leave, retirement? Any big spends: renovation, a second property, school fees? Do you want to pay this off as fast as possible, or keep cash accessible? How do you feel about repayments moving?
Then, and only then, the lender list, filtered by the answers as well as the rate.
Sometimes the answer at the end is the same loan the rate-sort would have picked. Fine. But now it’s picked for a reason, and when your circumstances change in year three, the loan was built expecting that.
How to tell which broker you’ve got
Easy test. Count the questions in the first meeting. If the broker asked about your income, your deposit and the property, and nothing about your life, you’ve got a price-shopper. If they asked what you’re doing after this, you’ve got a broker.
The other tell is what happens after settlement. A price-shopper is done when the loan settles (and, to be fair, so is their trail commission if you leave, which is why the better ones book a review). A broker books a review because the strategy was never about one loan. Our FAQ page lists the triggers for relooking at a loan: time passing, uncertainty, a change in the home’s value, wanting to use equity, a big personal expense. That list only makes sense if someone’s still paying attention.
If you’d like the longer version, call 02 9037 2825 or book with one of the brokers. Come with the plan, even if it’s vague. Especially if it’s vague.
This is general information. Whether a particular structure suits your tax position is a question for your accountant.
Frequently Asked Questions: A Broker Who Doesn’t Ask About Strategy Is a Price-Shopper
What should a mortgage broker ask me?
What you are planning after this loan: whether the property is a forever home or a future investment, income changes coming, and how you want to use your money.
Why does loan structure matter?
Because an offset account and a redraw facility behave very differently for tax if the property later becomes an investment. That is decided at settlement.
How do I know my broker is still looking after my loan?
They book a review. A broker paid a trail commission has a reason to keep your rate competitive, and it is fair to ask them to.
Related reading
- Why Choose a Broker Over Going Direct to a Bank?
- Mortgage Broker vs Bank: Why a Lender Panel Beats One Bank
- Loan Lounge vs the Big 4 Banks: A Side-by-Side
- More on the services we arrange
Book a broker or find a broker near you. Or call the Burwood office on 02 9037 2825.
General information only. This article does not take your objectives, financial situation or needs into account, and is not financial product, tax or legal advice. Lending criteria, fees and rates vary by lender and change without notice. Loan Lounge, Australian Credit Licence 515608.