How will the Royal Commission impact you…if you want to buy a house?

68 days’ worth of evidence and upwards of 10,000 public submissions, the final report of the Royal Commission into the financial sector was released on Monday.

The highest form of inquiry into matters of public importance, the Royal Commission’s aim was to expose wrong-doing and dubious practice in banks, insurance and superannuation companies.

Commissioner Kenneth Hayne made 76 recommendations and the Federal Government said it would act on all of them.

So how will this impact you…if you want to buy a house?

The Royal Commission thoroughly investigated the issue of responsible lending. That is, that financial institutions and advisors should have their clients’ best interests in mind when they recommend products that would part them with their hard-earned money.

They found large gaps in the way mortgage brokers operate.

At the moment, if you’re thinking of buying a property and you recruit the help of a mortgage broker to find the best loan, there are no rules which state that the broker has to act in your best interest. In other words, they may recommend a loan with much higher interest rates because they’re getting cash from that lender.

Commissioner Hayne has recommended that mortgage brokers have to work in the best interest of their clients. If they’re found not to do that, they could face civil (i.e. not criminal) charges.

But that change comes with a cost attached.

The consequence of removing those incentives from lenders means that we’ll move away from a lender-pays system (where banks and other institutions pay a broker to pass on a deal) to a borrower pays system. This means, if you want a mortgage broker to find you the best deal, you’ll be the one forking out the money.