Mortgage advisers: What you need to know

Larnie* decided to shift her mortgage to another provider after bad customer service from her bank. To make switching easier, she used a mortgage adviser.

“We used a mortgage advisor to do this. We have been really impressed. She gave us four lending options, outlined the advantages and disadvantages of each, and let us know important things, such as if we accepted a cash back, what the terms were, and how she got paid.

“I honestly feel it would have been a stressful and difficult process without her helping us navigate it.”

Larnie’s experience highlights how advisers can help people shop around for their mortgage – exactly what the Commerce Commission wants to see happen.

Yet, the Commission’s final report into personal banking, released in August, found not all mortgage advisers are presenting as many offers as Larnie received. It also said the industry could do more to promote competition between banks.

We examine the Commission’s recommendations for mortgage advisers and whether advisers think they’re doable. We also outline what to ask an adviser if you decide to use one.

The Commission’s recommendations

The Commission’s study found many people use a mortgage adviser to switch banks. In the past 3 years, 67% of home loans customers who switched their bank had used a mortgage adviser, while 40% of home loan customers had used an adviser to work through the loan process.

In the Commission’s view, this shows how mortgage advisers could help drive competition in the banking sector. But it thinks there’s room for improvement.

For a start, it thinks mortgage advisers should be canvassing the whole market for customers – currently, an adviser may only work with a small set of lenders and only provide one offer. In Australia mortgage brokers (as they are called there) must be aware of other offers in the market to be able to assess a rate that’s in the best interests of the customer.

The Commission also recommends mortgage advisers put more emphasis on the cost of lending when recommending a bank and show customers at least three different offers.

It notes that banks need to make it easier for advisers to put in multiple loan applications and should use standard forms. At present, the system is relatively manual, and processing differs depending on the lender.

The system is much slicker in Australia, which has online digital application portals and less paperwork for low-risk lending, meaning more applications can be processed.

What mortgage advisers think

The Finance and Mortgage Advisers Association of NZ (FAMNZ) is an industry body for advisers in Aotearoa. We asked its country manager, Leigh Hodgetts, whether mortgage advisers could be doing more to drive competition in the banking sector.

Hodgetts said mortgage advisers “already promote competition. If they didn’t exist, many consumers would just go to their bank and not shop around … without mortgage advisers a few large banks would control almost all of the market which would be a terrible result for consumers and competition.”

On whether Aotearoa should adopt the systems used in Australia, she said the regulations and licensing in the two countries were different.

“In Australia mortgage brokers do not give advice; they facilitate loans and provide credit. In NZ mortgage advisers operate under a license to provide financial advice.”

In both countries, brokers and advisers must be licensed to operate and are monitored by the regulator. In Australia, brokers also operate under a “best interest” principle, which means they put the client first. They must consider the client’s circumstances, goals and financial situation, and there is more emphasis on ensuring clients get the best possible interest rate, so they’re not paying more than they have to.

In FAMNZ’s submission on the Commission’s banking study, it said banks are “quick to compete on interest rates and match their competitors […] So interest rates are not seen as a driving reason to recommend one provider over another.”

Rather, the bank’s lending policy, how much someone can borrow, loan-to-value ratio restrictions and the structure of the loan come into play. The smaller size of Aotearoa’s lending market means “behaviour around competition is not the same” as in Australia.

FAMNZ’s main issue with the Commission’s observations on the Australian market appears to be around “prescribed practices”.

Hodgetts said the New Zealand system is principles based, whereas in Australia it’s more prescribed practices and legislation “that we do not want to bring to NZ”.

She said recent changes to legislation, and a monitoring report by the Financial Markets Authority (FMA), show advisers in Aotearoa are working in their clients’ best interests and are doing a good job.

Certainly, mortgage advisers appear to be popular in Aotearoa. Consumer NZ’s Sentiment Tracker survey in July 2024 found 34% of homeowners had used a mortgage adviser, with use highest among the 18 to 29 year age group.

Nearly 80% of those who used a mortgage adviser had a positive experience, yet the likelihood of using and recommending an adviser decreased with age. This could be because advisers help build confidence and knowledge around the house buying process, showing the importance of their educative role.

Banks need to improve loan application systems

Lack of innovation in New Zealand banking processes is restricting the potential for mortgage advisers to drive competition, the Commission said.

It thinks banks need to step up and have standardised systems and processes for mortgage advisers to file multiple loan applications.

FAMNZ agrees that having a standardised system for loan applications across all banks would make life easier.

“It is a very manual system in NZ, as credit departments review applications manually. This is the part we would like to see change by embracing new technology to speed up approval times for consumers in NZ.”

While banks have cited the time and cost involved in assessing multiple applications, having a standardised process could “mitigate the cost of processing more applications by investing in better and more efficient systems,” a Commission spokesperson said.

We asked the four main banks and KiwiBank if systems could be streamlined across banks and whether lack of innovation is holding mortgage advisers back.

KiwiBank told us, “Moving towards digital forms and ensuring consistency across the industry is essential for streamlining processes”, and by fostering innovation “and implement[ing] consistent digital processes, we can enhance efficiency and improve customer experiences.”

ANZ said streamlining systems will take an industry approach, and “we’re keen to see what steps we can take here to progress the Commission’s recommendation.”

Westpac said it didn’t believe a lack of innovation was holding competition back; “[w]e are continuously investing in innovation across the bank to provide value and better experiences for our customers, including those working with a mortgage advisor.”

We didn’t hear back from ASB or BNZ before going to print.

How mortgage advisers are licensed

Mortgage advisers must have a licence to operate in New Zealand. The FMA issues the licence and monitors the sector. Advisers have a code of conduct they must follow and reporting duties to the FMA.

In a recent monitoring report, the FMA found most advisers (which includes financial, investment, risk insurance and mortgage advisers) had their clients’ best interests at heart, and had good knowledge, which underpinned good advice.

However, some advisers had work to do. Some didn’t ensure clients understood the advice they were giving, while others didn’t sufficiently understand their clients’ needs or appetite for risk. There were also instances where advisers didn’t disclose how they were being paid or which providers they worked with.

How mortgage advisers are paid

Most mortgage advisers get paid a commission from the lender they arranged the loan with. Others may also charge a fee.

This creates a potential conflict of interest. You want an adviser to get the best deal for you, not promote an offer that means they get paid the most.

Under the FMA’s licensing and monitoring programme, mortgage advisers are required to treat clients fairly and with integrity and tell clients how they are being paid.

If you use a mortgage adviser, it is essential to ask how they get paid, and how that payment may change depending on the offers they present – although advisers should disclose that information up front.

What to ask a mortgage adviser

If you’re planning to use a mortgage adviser, the FMA recommends you ask:

• How are they being paid?
• How many lenders do they work with? What lenders don’t they work with?
• How many offers will you receive?
• What are the fees with the loan?
• How each loan option works, what are its features, costs and why it’s being recommended to you?
• What you need to provide for the loan application.

The FMA also recommends you get a written quote detailing the loan amount, its type and duration, the interest rate and any fees.

If you don’t like what’s being offered, you don’t have to take it. You can go elsewhere. Also beware of “cherry on the top” offers like cashbacks – the long-term implications of the mortgage are more important.

When it comes to paperwork, don’t sign blank forms or leave them for the adviser to fill it in later.

To make sure you’re dealing with a licensed adviser, check the Financial Services Provider Register https://fsp-register.companiesoffice.govt.nz/

And if you’re not happy with an adviser’s service, you can make a complaint to the FMA: https://www.fma.govt.nz/contact/make-a-complaint/

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*Name changed to protect privacy.