The ABC report on RBA Governor Michele Bullock’s Senate appearance highlights that the expanded First Home Guarantee scheme—allowing buyers to enter the market with deposits as low as 5% could increase high-risk lending, negative equity exposure, and mortgage stress. For Australian mortgage brokers, this shifts the legal and ethical landscape of broking into a higher-risk territory.
Risks to Mortgage Brokers
- Heightened Default and Reputational Risk
Brokers arranging loans for clients under the government’s 5% deposit scheme are now dealing with applicants whose loan-to-value ratios (LVRs) are significantly higher, often exceeding 95% once fees are capitalised. If property values fall, these clients could slip into negative equity—owing more than their home is worth—and potentially default, leaving brokers exposed to reputational and complaint risks if suitability or affordability were not clearly documented. - Compliance and ASIC Liability Exposure
With higher-LVR lending increasing, brokers face intensified scrutiny under the Best Interests Duty (BID) and National Consumer Credit Protection Act (NCCP). ASIC can now impose penalties up to $1.57 million per individual for breaches of these obligations. In a high-risk environment, failure to justify recommendations or adequately test affordability could invite compliance action or AFCA complaints. - Economic and Policy Volatility
Ms Bullock’s acknowledgment that government housing policy could distort market balance signals an unstable environment for credit risk assessment. Rapid shifts in RBA policy, competing government housing incentives, and possible property corrections could all undermine brokers’ loan projections and client service assumptions. - Potential Conflicts of Interest Concerns
As lending volumes rise through home guarantee channels, critics may again question broker incentives. The RBA previously warned about broker conflicts in high-commission or incentive-driven environments, and these narratives tend to resurface after lending booms, amplifying reputational hazards for the sector.
How Brokers Can Manage the Risks
- Strengthen Documentation and Compliance Processes
Brokers should maintain detailed BID records, affordability assessments, and file notes explaining why a high-LVR loan remains in a client’s best interest. It’s critical to evidence that borrowers were advised about the risks of rising rates, possible negative equity, and reduced future refinancing options. - Implement Enhanced Suitability Stress Testing
Conduct repayment stress scenarios assuming rate rises of at least 2–3%, validate clients’ long-term affordability, and ensure credit assessments incorporate buffer room for future expenses or employment changes. - Educate Clients on Risk and Sustainability
Running client webinars, guides, or posts addressing FOMO-driven behaviour and property overvaluation can position brokers as trusted advisors rather than facilitators of risky loans. Emphasising conservative borrowing and emergency buffers helps reduce post-settlement hardship. - Collaborate and Diversify
Working alongside buyer’s agents and financial counsellors can help align buyer expectations. Brokers should also diversify lending portfolios to balance high-LVR first home guarantee clients with lower-risk, refinance, or investment lending segments. - Monitor Ongoing Economic Indicators
Staying across RBA and APRA updates ensures brokers can adjust internal credit policies and client advice. As Michele Bullock’s testimony underscores, future monetary decisions could significantly alter borrowing capacity and housing values.
Summary
In short, the RBA’s warning signals that Australian mortgage brokers now operate in a more fragile legal and economic environment, where government-guaranteed high-LVR loans carry greater long-term risks for clients—and compliance liabilities for brokers. Brokers can mitigate these threats through robust file notes, conservative stress testing, and proactive client education, preserving both trust and compliance integrity as property risks heighten.
