The mortgage and finance industry’s peak body has called for mandatory comparison rates (MCR) for home loans to be abolished, claiming they are and always will be misleading to consumers.
The Mortgage and Finance Association of Australia (MFAA) chief executive Phil Naylor said MCRs rarely provide a true comparison for consumers to accurately compare different loan products when choosing a home loan.
“Although MCRs are a great concept, their execution is difficult and flawed,” Naylor said.
“Recently, financial product research firm, Cannex, called for regulatory changes to make the comparison rate a more accurate tool for comparing loans.
“But no matter how many changes were made to the existing comparison rate tool, it could never take into account all the different elements of each and every product out there.”
Naylor said it is misleading to promote MCRs as providing the true cost of a loan by combining fees and charges with interest rates.
“Costs such as exit fees or redraw fees and cost savings such as fee waivers are not included in the comparison rate, yet these are the individual features that influence the cost of a loan.”
Cannex’s head of research Mara Bun said she was not surprised by the MFAA’s comments.
Bun said while it is a challenge to have a benchmark that captures all fees and rates, consumer confidence is critical.
“Yes, you might argue that it is misleading. But I guess it’s very misleading to consumers to think they have a very competitive loan only to find that if they leave [their provider] in three to five years they’ll have to pay exit penalties.”
The MFAA is the peak body providing service and representation to more than 12,600 mortgage brokers, finance brokers, mortgage managers, mortgage lenders (bank and non-bank), and originators.
