Mortgage Broker Best Interests Duty — Your Legal Protections (2026)

Updated

Mortgage Broker Best Interests Duty — Your Legal Protections (2026)

Since 1 January 2021 (with full commencement on 1 July 2021), Australian mortgage brokers are legally required to act in the best interests of their clients. This law — introduced following the 2019 Hayne Royal Commission — fundamentally changed broker obligations and provides Australian borrowers with stronger legal protection than existed before.

What Is the Best Interests Duty?

The best interests duty (BID) is a legal requirement in the National Consumer Credit Protection Act 2009 (NCCP Act) — specifically, sections 158C–158LA introduced by the Financial Sector Reform (Hayne Royal Commission Response) Act 2020.

It requires mortgage brokers (and their credit licensees) to:

  1. Act in the best interests of the consumer in all dealings relating to credit assistance
  2. Prioritise the consumer’s interests when there is a conflict between the consumer’s interests and the interests of the broker or the lender
  3. Not recommend a product primarily because it pays a higher commission — the recommendation must be based on what is best for the borrower

This is a higher standard than the previous “not unsuitable” test that existed before the reforms.

What Must Brokers Do to Comply?

1. Understand Your Needs and Objectives

Your broker must take reasonable steps to understand:

  • Why you want the loan (e.g., purchase, investment, refinancing)
  • Your financial situation (income, expenses, assets, liabilities)
  • Any specific features you need (offset account, fixed rate, low fees)
  • Your ability to repay

They cannot recommend a loan without this inquiry.

2. Investigate Relevant Loan Options

Your broker must investigate loans from their panel that are likely to meet your needs. They cannot simply default to their preferred lender or the one paying the highest commission.

3. Recommend the Best Option

The broker must recommend the loan that is the most suitable and in your best interests — not merely adequate or “not unsuitable.” If multiple loans are broadly similar, the broker must explain how they made the final selection.

4. Prioritise Your Interests When Conflicts Exist

If a conflict of interest exists (e.g., one lender pays higher commission), the broker must prioritise your interests — not their financial benefit.

5. Provide Written Disclosure

The broker must provide a Credit Proposal Disclosure that sets out:

  • The recommended loan product and the reason for the recommendation
  • All commissions the broker will receive (in dollar terms or a range)
  • Any conflicts of interest
  • A comparison with other products considered and why they were not recommended

What the Best Interests Duty Does Not Require

The duty requires reasonable steps, not perfection:

  • Brokers are not required to search every lender in the market — only those on their panel
  • Brokers do not need to identify the lowest-rate loan in the market if a higher-rate loan better suits your needs (e.g., better offset features)
  • The duty does not require brokers to provide financial advice — only credit assistance

Before the Reforms — The “Not Unsuitable” Test

Before 2021, brokers were required to recommend a loan that was “not unsuitable” for the borrower — a much lower bar. This meant a broker could recommend a product that wasn’t the best option, as long as it was technically acceptable.

The Hayne Royal Commission found this standard was insufficient, noting evidence of brokers recommending products based on commission rather than borrower benefit. The best interests duty was introduced to address this.

How the Duty Is Enforced

ASIC is the regulator. If a broker breaches the best interests duty:

  • ASIC can take civil or criminal action against the broker or their licensee
  • Financial penalties apply for breaches
  • ASIC can suspend or cancel the broker’s credit licence

As a borrower, you can also complain to AFCA (see below).

Conflict of Interest Priority Rule

A key element of the reforms is the conflict priority rule: if a broker has a conflict of interest, they must prioritise your interests over their own.

Examples of conflicts:

  • A lender pays higher upfront commission than a competitor offering a better product
  • The broker’s aggregator has a preferred lender relationship
  • The broker’s employer (e.g., a bank-owned franchise) would prefer you use their related lender

In all these cases, the broker must document and resolve the conflict in your favour.

Your Rights as a Borrower

Under the best interests duty, you have the right to:

  • Request an explanation of why a specific loan was recommended
  • Request a comparison of the recommended loan against other products considered
  • Receive written disclosure of all commissions before signing anything
  • Ask about conflicts of interest — the broker must answer honestly

What to Do if You Believe Your Broker Has Breached the Duty

Step 1: Raise It with the Broker Directly

Contact your broker in writing and explain your concern. Request a written response.

Step 2: Escalate to the Broker’s Licensee

If the broker does not resolve your complaint, escalate to the Australian Credit Licence holder (often the aggregator or franchise group). Their contact details must appear in the broker’s Credit Guide.

Step 3: Lodge a Complaint with AFCA

If still unresolved after 30 days (or you receive an unsatisfactory response), lodge a complaint with the Australian Financial Complaints Authority (AFCA) at afca.org.au.

  • AFCA is free for consumers
  • AFCA can order remedies including monetary compensation
  • AFCA decisions are binding on the broker if accepted by you

Step 4: Report to ASIC

If you believe there has been deliberate misconduct, you can also report to ASIC at asic.gov.au. ASIC does not investigate individual disputes but uses reports to identify patterns of broker misconduct.

Frequently Asked Questions

Does the best interests duty apply to online mortgage brokers?

Yes — all licensed mortgage brokers and credit representatives must comply with the best interests duty regardless of how they deliver their service (in-person, phone, online).

Does the duty apply to bank staff who recommend home loans?

No — the best interests duty applies specifically to mortgage brokers (credit representatives and ACL holders providing credit assistance). Bank staff recommending their own bank’s products are subject to different (and less stringent) standards.

Can a broker ever recommend a higher-rate loan?

Yes — a higher-rate loan may still be in your best interest if it has features that benefit your situation (e.g., an offset account that saves more than the rate difference, flexibility to make extra repayments, no annual fee). The broker must explain the reasoning.

When did the best interests duty commence?

The best interests duty was introduced by legislation effective 1 January 2021, with transitional arrangements. Full commencement for all mortgage brokers was 1 July 2021.

This article provides general information about the Australian mortgage broker best interests duty. It is not legal advice. For advice on a specific situation involving a broker’s conduct, speak with a consumer advocate or contact AFCA. Find a licensed mortgage broker through MoneySmart.