Mattresses, mortgage brokers and disappearing elephants
Just the other day I was looking into getting a new mattress.
It's been 10 years and my mattress was worn and sagging and just not giving me the restful nights sleep that I needed.
I looked at Koala, Ecosa, Sleeping Duck, Tontine mattress in a box - and my Instagram and Facebook feed started to fill with advertisements of the same! (Must remember to turn siri off)
Each retailer marketed their mattress as the best, 3 layers versus 2 layers, medium versus soft, latex versus memory foam, gel technology, Khouldcell (??) and it just went on and on - who knew choosing a mattress could be this complicated??!
I started to think; this is a lot like choosing a home loan.....
There are so many lenders out there and within those lenders are so many rates and types of loans, how does the average person source "the best" loan for their individual needs?
This is where a good mortgage broker can really make a difference.
A good mortgage broker is constantly studying, researching, learning and updating they knowledge on the home loan market. They know not only what rates and products each lender has to offer, but also the credit policies of each lender. Their job is to make your life easier and do the homework and hard work for you.
Often people are shopping around for the cheapest rate, but a good broker will explain that rate and product is only one piece of the loan application puzzle. In fact, which lender will approve your loan is far more important, and it's important to understand that your idea of what you can afford or what you can borrow is often very different to what the bank determines it will be. Whether you have a 6 figure salary or you're earning a casual income or you have consistent overtime, lenders have different parameters on what they will accept in terms income, deposit and savings and many other intricacies that go into lending policy. I have had clients where Mr and Mrs both work, earn a great salary, are good at saving but the difference between what bank A and bank B will lend them can be vastly different. Then there is Lender's Mortgage Insurance and valuations and whole host of other considerations that a good broker will intuitively weigh before they give you options of which lender, rate and product may suit you best. Slight "tweaks"on your deposit amount can save thousands in Lender's Mortgage Insurance and different banks can net a different valuation result sometimes.
You have no doubt heard about the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services. Earlier this month commissioner Hayne released his report. It was a very disappointing day for mortgage brokers.
We thought the commissioner's recommendations would address the systemic misconduct by the Big Four Banks - however after 134 witnesses and numerous stories of deception and lies, all directed at the banks, the Commissioner instead chose to leave the banks unscathed and instead take aim at 17,000 small business owners. The two main recommendations from commissioner Hayne's report aimed squarely at mortgage brokers was to 1) cut "trail" altogether and 2) significantly reduce "upfronts" - but what exactly does this all mean and why should YOU be concerned?
Currently, if you take out a loan with CBA, ANZ, Westpac, NAB or any other lender via a mortgage broker - the mortgage broker is paid an upfront fee or "commission" for setting that loan up with the lender. The broker is also paid a trail payment, which is a smaller monthly payment for the life of the loan. The idea behind this (when it was first established) was that instead of getting the whole commission when the loan settled, like a real estate transaction for example, the broker would be invested and incentivised into looking after their client ongoing and long term. It is important to note here, that if you were to refinance your mortgage and go to another lender within the first 2 years, the broker would be "clawed back" some or all of their upfront commission and trail would cease. So it has always been important to any good broker to not only place their client at a lender that met the client's individual needs, but also check in often to ensure their needs were continued to be met. No decent broker is putting loans to banks because they get paid more at one bank versus another. It IS true that banks do pay differently, but commissions are constantly changing and there is such a marginal difference that the vast majority of brokers do not even look at what commission they will get paid before they recommend options.
Comparatively, if you walk into a CBA branch for example, the banker can only sell you a CBA home loan. They cannot tell you whether there is a product that may be better suited to you at say Westpac, ANZ, Bankwest, Auswide or Choicelend etc - nor can they discuss another bank's more competitive rates or policies that favour your particular scenario.
Around 59% of all loans are originated via the broker channel - so that's a lot of home borrowers who clearly find a broker more impartial, hardworking and competitive than applying for a loan via a bank directly.
The commissioner, puppeteered by CBA's CEO Mat Comyn - who was instrumental in deflecting bank misconduct by throwing brokers under the bus - thinks that the borrower should pay a "fee for service" for using a broker and that fee should be built into their loan. He further goes on to say, to keep things "fair" the bank should also charge a similar fee to the borrower. Ah - say what?? Yes you read that right; this was supposed to be a Royal Commission into bank misconduct. It was supposed to make things fairer and easier for you, the borrower, the consumer, the little guy. Instead commissioner Hayne is recommending banks now charge an additional fee and make more money and brokers (for whom there was NIL evidence of misconduct) should have their commission cut. This is the equivalent David Copperfield making an elephant disappear - a slight of hand deflection that shifts your attention from the real problem so that once again banks get run away with the loot.
Cutting broker commissions will no doubt devastate the industry. An industry made up of small business owners, mums and dads who often work locally in their community. Less brokers means less competition. Less competition means the banks make more money. This is a GIANT FREE KICK to the Big Four banks who have walked away from the Royal Commission with essentially a slap on the wrist.
At Loan Studio, we don't work for any bank. Our job is simple really - to make things simple for you. To keep banks honest. To keep competition alive. To help consumers get the best rate and most suitable loan for their needs. To get people into their first home sooner. To help build property portfolios and retirement strategies. To serve our customers.
We are a family owned, Aussie-grown, locally based company. All of our employees are hand picked, mentored, trained and accredited to meet our rigorous standards.
We have always been transparent about how we get paid and we think we earn our commission by setting you up with a loan that meets your needs, by doing all of the running around for you, by working with your conveyancer, agent, builder and the lender to try and make things as hassle free as possible.
We trust that the vast majority of our clients are loyal, repeat clients who came to us via word of mouth or referral, clients who we have helped into their first homes, helped refinance to more competitive loans, assisted with building investment portfolios and much more. Many of our clients have become our mates having dealt with them for many years. We see them at Woolies or Coles. We sponsor their basketball or soccer teams. We check in with them to let them know their fixed rate is expiring soon and they might want to plan for the change in payments.
What lies ahead for mortgage brokers, is largely dependent on policy makers and lobbyists and while we wait - we hope you as a consumer will make informed decisions and continue to seek out mortgage brokers to provide the great competitive service that we have always strived for and that is ingrained in the culture of our business.
Meanwhile, I think I am going to go with sleeping duck for my new mattress. And I am definitely going to put a glass of wine on there and jump around like the commercial - wish me luck!