Peter White, chief executive of the Finance Brokers Association of Australia (FBAA), last week reminded brokers not to provide advice in areas they aren’t qualified to do so, particulary investing in property.
“If you are only a qualified finance broker, act as a broker and do your best to meet your client’s needs,” White said.
“If you also want to assist a client in other areas like property purchasing, get the necessary qualifications and training otherwise you may be at risk of a life changing personal pay out,” he said.
White and the FBAA cited a recent case in which a broker was found to have breached his duty of care by the Credit Ombudsman Service and forced to pay more than $115,000. The Ombudsman claimed the broker had given incorrect and unqualified advice.
In addition, the client – who was forced to sell an investment property at a substantial loss – took the legal action against the broker.
Fred Haggar, director of buyer’s agency Property Search 4U and REBAA NSW representative, said the simple fact of the matter is that brokers don’t have the required knowledge to provide advice on investing in property.
“I believe mortgage brokers are qualified to assess someone’s borrowing capacity and their ability to service a loan. They’re not qualified to tell their customers what to buy or where and when to buy it,” Haggar said.
“A client might ask ‘Fred, what sort of loan should I take out?,’ unlike a mortgage broker who might put forward a property, we do not tell the client what is the best loan, whether they should go principal and interest or interest only. We always tell them to go to their bank or their broker because they’re the ones qualified to answer that,” he said.
Haggar said he believed the majority of brokers aren’t doing the wrong thing, though he believes there is a small number who may be acting as a go-between for developers.
“There might be some developers, primarily off-plan ones, who might present to the broker about their development and then the broker may choose to present that to the customer,” he said.
“A very longstanding Sydney client bought three off the plan units last year in Queensland promoted by his mortgage broker and then he called us because he wanted to upgrade his Sydney home with a loan.
“His bank advised his borrowing capacity has been greatly diminished because the valuations of his three off plan investments are now less than the 100% of purchase price loans he took out. He overpaid by an incredible amount for the units and in our assessment the market will take six years to catch up with the prices he paid.”
While he does believe it’s only a small number of brokers who operate in areas they shouldn’t, Haggar did still have some words of warning for people looking to engage the service of one.
“In general terms I don’t think the mortgage broking or lending industry are operating outside their territory, though I’m flabbergasted when people just go with the first one they come across. I can’t believe that they do that without some research, but they do.”