It’s a free service that saves you time and effort when you’re buying property – so why do only 30% of New Zealanders use a mortgage broker?
Mortgage brokers (the industry prefers the term ‘advisers’) help you borrow money to buy property. They shop around for the best deal, do your paperwork, help overcome borrowing hurdles, and customise lending to suit your situation.
The primary benefits of using a mortgage adviser are:
you can save time because you don’t have to do all the research into the best rates and packages;
you can ensure you get the best interest rate; and,
you can reduce the hassle because the adviser will handle the paperwork and help you get all the documentation you need to complete your loan application.
How do brokers make their money?
It seems logical that if a mortgage adviser is doing all this work for you, somewhere along the way you’re paying for it. That’s a misconception that prevents many Kiwis from approaching a broker. But while it’s certainly true that somebody is paying the fee, that somebody is not you.
When you use a mortgage adviser to secure lending on your behalf, the bank pays a commission to that adviser. If you buy a mortgage directly from your bank, the bank may pay a commission to a branch lender or a mobile mortgage specialist.
“We say banks are ‘channel agnostic’; it’s all the same to them and they genuinely don’t mind which channel the loans come through,” says John Bolton, principal at Squirrel Mortgages. “We even get referrals from banks.”
SEE ALSO: How to save money on your mortgage
Which lenders work with brokers?
As of this month, all the major banks and lenders now deal with mortgage advisers. The last hold-out, BNZ, announced a few weeks ago that it was ending its 12-year absence from the mortgage adviser market.
Kiwibank’s home loans were not available prior to 2013, but they are now – so you can ignore the dated advice that some banks won’t negotiate with brokers (you’ll still see this on many websites).
Some people worry that mortgage advisers will steer them toward a particular lender who pays a high commission, but the commissions are a “fair playing field”, says Karen Tatterson, a mortgage adviser at Loan Market and a board member of the Professional Advisers Association.
“As part of our code of conduct we need to be able to prove we have done the right thing for the client,” she says. “Because we work with all of the banks, we get the best package for the client, rather than the bank.”
Can you negotiate a better deal than a broker?
To successfully negotiate, you’ll need to know what all the other banks are offering, from interest rate discounts to sweeteners (like cash, a free iPad, or waiving various fees). Professional advisers have this information at their fingertips.
Mortgage advisers know each lender’s peculiarities and partialities: it’s about knowing a lender’s “pain points”, says Bolton. Brokers know which banks are more sympathetic to a leaky home, or a slightly chancy-looking property investment, and how to time an application to get one of the rare sub-20% equity loans each lender has available.
“Nobody's going to be financially disadvantaged by using a broker,” he says. “We will get as good a rate as the sharpest negotiator.”
The added benefits of using a broker
A good broker can do more than simply shave your interest rate. If you have 20% equity and you are aiming to buy a simple, high-quality standalone home, your needs are few and the lenders will be falling over themselves to offer you a great deal. But there’s a lot of lending which falls into grey areas, including:
Low deposit lending and preapprovals
Borrowers who are newly employed, self-employed, or have irregular incomes
Borrowers who are about to take maternity leave
Apartment lending, particularly on small apartments
Funding for a new build
Properties with unconsented renovations, leaky buildings, and anything without a code of compliance certificate
In these situations, a good mortgage adviser can help out. It can be a matter of timing, of choosing the right lender, or of presenting the loan application with the kind of supporting information that makes it easy for a lender to say yes.
Bolton says he recently worked with a client who had been turned down for lending on a house with bathroom built without council consent. By organising a building surveyor, having an inspector prove the bathroom was ‘safe and sanitary’ and talking to both the insurers and the bank, he was able to get the loan approved.
“You don't go to a mortgage broker simply to negotiate,” he says. “We can do that, but that's not where we add value. We’re involved with house buying process; we look at properties, arrange building inspections, valuations, check LIMs, look at titles, and if we see an issue they need to discuss with a lawyer, we refer them back.
“We check all the properties before they got to auction and do a comparative sales analysis. A large part of the job is giving people confidence.”
Tatterson says she’s often able to help borrowers strengthen their financial position by consolidating debt, using cash to pay down loans and refixing for shorter periods; “You’ve got me for the life of your mortgage. This is a relationship, not a transaction.”
Finding a good mortgage adviser
To find a reliable mortgage broker in your region, Tatterson suggests you ask around for a recommendation, look at the Professional Advisers Association website, or talk to your real estate agent.
If you’re lucky, you’ll be dealing with this adviser for many years, so choose someone you like – you want to be able to ask plenty of questions so you feel confident that know exactly what you’re signing up for.
SEE ALSO: How to save money on your mortgage