So you have decided that it is time to purchase a property. It may be your first home or an investment home. However, before you decide to go and inspect any property, make an offer and sign the contract, it is important to be sure that you have enough funds to complete the purchase.
As it can be hard to find the time to research the interest rate market, calculate your funding needs, or find the best loan and lender, many Australians choose to use a mortgage broker to save time and money. Mortgage brokers are engaged to research the credit market to find the most suitable lender for your personal finance situation, negotiate the terms and rates of the loan, and to ensure that you have sufficient funds to complete the purchase of your property at settlement.
We have seen instances where clients have trusted their mortgage brokers with their loan applications and been advised that everything is in order, yet there have been no applications made, no approval of finance, and the contracts have gone unconditional. Once a contract for the sale of property becomes unconditional, a vendor has the right to force the purchaser to proceed with the settlement, or to terminate the contract and forfeit the balance deposit, and sue for any damages and loss.
The National Consumer Credit Protection Act 2009 (Cth) (‘NCCPA’) governs these relationships. Under this legislation, the only duty of care brokers owe to their clients is to only recommend loans that are suitable. This is a low standard under the Act, as a suitable loan is defined as one which is ‘not unsuitable’, or not a loan that the client can’t afford.
Mortgage brokers are authorised to receive payment in the form of commission from lenders by the NCCPA. As the best interests duty described in Chapter 7 of the Corporations Act 2001 (Cth) does not apply to mortgages, a broker has complied with his or her statutory obligation to avoid a conflict of interest if he or she makes disclosure of a commission payment to you. As commission is the most common form of payment for mortgage brokers, you should make sure that you discuss this with your broker.
Choosing the right broker
According to the NCCPA, mortgage brokers must be registered with the Australian Securities and Investments Commission (ASIC) and have an Australia Credit License. They should belong to a reputable industry association such as the Mortgage and Finance Association of Australia (MFAA), the Credit Ombudsman Service (COSL) or the Mortgage Industry Association of Australia (MIAA).
You should also make sure that the broker documents your meetings and conversations around your financial position, and where relevant, provides you with any written correspondence received from a lender. If you do not receive these documents, or any mortgage documents required for signing prior to the day of your settlement, this should raise a red flag.
In a sale of property, the real estate agent is normally the agent for the seller, not for the purchaser. In order to ensure you as the purchaser are properly protected, it is best practice to contact a lawyer to review the contract before signing it. Our conveyancing team can assist in identifying risks not disclosed to you by the real estate agent prior to signing the contract, and ensure your needs are met.