The federal government put valuable information in the hands of homebuyers on January 1 when it introduced home loan ‘key facts sheet’ legislation. But two months on, the initiative has come under criticism from consumer groups, which have highlighted one major flaw in the regulation.
Canberra’s banking reform legislation now makes it compulsory for lending institutions to supply a home loan facts sheet to prospective borrowers. However, consumers need to ask for one – and it’s this catch that is proving difficult, according to a new study by Choice.
Choice ‘shadow shopped’ 18 banks and credit union branches in a variety of locations in Sydney during January and February, posing as a first-home buyer seeking to borrow a $300,000 mortgage. The mystery shoppers were instructed to ask for comparative fee and interest information they could take away and purposely did not use the phrase ‘key facts sheet’ during their visit.
Results were “unpleasantly surprising” with just one, of the 18 branches visited, providing the customer with a facts sheet. The majority of bank staff had “little or no idea that key facts sheets for home loans even exist”.
Matt Levey, head of campaigns at Choice said: “We don’t think consumers should have to come up with three magic words – key facts sheet – to get access to clear information to help them find the best mortgage on offer”.
“It seems the last thing the big banks want to do is help consumers compare products,” said Levey.
A spokesperson from the Australian Securities and Investments Commission responded: “[ASIC] is monitoring compliance with the new reforms by looking at individual complaints and industry-wide conduct”.
Important information is highlighted within the facts sheets, including headline and comparison interest rate, fees and charges, the total financial cost over the life of the loan and information about the impact of rate changes.
Damian Smith, chief executive of RateCity, said the facts sheets should make it easier for borrowers to compare apples with apples before they apply for a home loan.
“This initiative helps first-time borrowers in particular to compare loans side by side, and give them just a little more bargaining power – which is a good thing,” he said.
“Anything that simplifies the lending process and encourages greater transparency in the home loans market is a good thing for competition.”
Borrowers should always refer to the product disclosure statement before taking up any financial product and RateCity recommends using the ‘comparison rate’, which includes ongoing fees and charges, rather than the headline rate when comparing home loans.