A broker’s job sounds simple: find the borrower a better loan. The regulator’s review of the best interest duty is a reminder that “better” is doing a lot of work in that sentence. Brokers responding to the review have made one point repeatedly: the cheapest loan is not always the best one.
We only have the headline and a short description of the commentary, so this piece looks at the mechanics and the policy trade-off rather than any specific finding.
What the duty actually asks for
The best interest duty requires a broker to act in the borrower’s best interests and to put those interests ahead of their own when recommending a loan. In practice, that means the recommendation has to be defensible, and a file note explaining why a loan was chosen matters as much as the loan itself.
The obvious shortcut is to sort lenders by rate and pick the top one. That is easy to document, but it can fail the borrower in ways a rate comparison never shows.
Price versus suitability
A lower headline rate can sit alongside features that cost more over time. Examples borrowers often overlook:
- No offset account, or a capped one, which can erase the saving for anyone holding cash.
- Fees, either upfront or ongoing, that narrow the gap to a pricier-looking rival.
- Tight repayment or redraw conditions that bite when income changes.
- Lender policies on income types, such as self-employed or irregular earnings, that decide whether approval is likely at all.
This is the core of the industry’s argument. If a regulator leans too hard on price as the test of whether advice was good, brokers face an incentive to default to the lowest rate and document it. That protects the broker’s file but may not serve the borrower.
Why rising rates sharpen the question
When rates climb, every borrower becomes more price-sensitive, and the temptation to treat rate as the only variable grows. Our coverage of mortgage stress at a 40-year high shows how thin many household buffers have become. For a stretched borrower, a loan with flexible repayment features may matter more than a few basis points.
The flip side is real too. A broker who steers clients to a loan that suits the broker’s commission arrangements more than the client is exactly what the duty exists to stop. A tougher test is not a bad idea in itself. The risk lies in how it is applied.
What a tougher duty could mean for costs and choice
The likely effects fall into a few buckets, and none are certain:
- Compliance costs. More documentation and review time can raise the cost of delivering advice. Some of that tends to flow through to borrowers or to the number of clients a broker can serve.
- Lender panels. Brokers may lean on a narrower set of lenders they know well and can justify, which could reduce effective choice at the margins.
- Non-bank access. Borrowers who do not fit mainstream bank criteria often rely on specialist lenders, as we covered in non-bank lenders investors are turning to. A price-first test could make those recommendations harder to defend, even when they are the only workable option.
Brokers now write the bulk of new home loans, per our analysis of branch closures handing brokers 81.6% of new loans, so the standard applied to them touches a very large share of borrowers.
The catch
The catch
A rule meant to protect borrowers can quietly narrow their choices if it pushes brokers towards the safest-looking recommendation rather than the most suitable one.
What borrowers can do
You do not need to wait for the review to land to protect yourself:
- Ask your broker why the recommended loan beats the cheapest alternative, in writing.
- Compare total cost over your expected holding period, not just the headline rate.
- Check features you will actually use, such as offset, redraw and repayment flexibility.
- Ask whether the recommendation changes if rates rise another percentage point.
Our home loans, lenders and refinancing guide walks through the comparison steps in more detail.
Where this probably lands
Expect a push for clearer documentation of why a loan was recommended, rather than a blanket rule that price wins. The sensible outcome is a standard that rewards a well-reasoned recommendation, even when it is not the cheapest. Whether the final settings get there is the open question, and one worth watching as scrutiny of lending intensifies.
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General info, not financial advice.
