According to the Mortgage and Finance Association of Australia (MFAA), brokers are involved in about 70% of all residential home loans. This is the first time on record the proliferation of broker-originated mortgages has surpassed 7-in-10.
Brokers are popular with Aussie home buyers, but it might have occurred to you that with rate information so accessible these days, you might be able to find a loan yourself. Read on to find out about how both options work, and which is right for you.
How does using a mortgage broker work?
A mortgage broker is basically your agent. You’ll give them information about your financial situation, they’ll assess your borrowing power, and use their expertise and panel of lenders to find the home loan that’s right for you.
Often, brokers are paid via commission paid by the lender, so using one won’t cost you anything extra. Having a broker can be particularly useful if you’re a first home buyer and nervous about navigating banks yourself, or you have a more complex scenario and want to add a range of features to your product.
Benefits of using a mortgage broker
There are several things a good broker can offer you:
1. Industry knowledge
A good broker should have a comprehensive knowledge of market conditions, and what the most competitive rates are. Rather than you going out and researching what’s on offer at all the various lenders, your broker will likely know what sort of rate a person in your situation should be looking for.
2. Industry connections
Mortgage brokers rely on strong relationships with banks and other lending institutions. They will often have a direct liaison, a business development manager or other similar position, that they frequently deal with. This means your broker might know that particular lenders sometimes give out loans at lower than advertised rates, for example, or that your circumstances are particularly suited to a certain bank.
If you spend long enough on google, you will probably be able to put together a solid picture of the mortgage market and what sort of rate you should be looking for. It’s important though to remember how valuable your time is. Hours spent trawling through the small print on banks terms and conditions might be better spent elsewhere: consider the opportunity cost of this time, what you could have achieved if you had allocated these hours elsewhere. Whether you want to spend more time working on your business or having fun with your family, using a mortgage broker can be a good way to free up your schedule.
Mortgage brokers need to comply with the National Consumer Credit Protection Act (2009), which requires them to always act in the best interests of customers. While you might have reservations about the trustworthiness of brokers, they risk the wrath of ASIC if they are prioritising lining their own pockets at the expense of you, the homebuyer.
How to pick a mortgage broker
When choosing a mortgage broker, consider the following:
Experience and reputation. Look for a broker with a proven track record and positive customer reviews. You want to find a broker who has spent enough time in the mortgage industry to develop the knowledge and expertise to handle your specific needs.
Licensing. Before you engage a broker, make sure they are licensed to give you credit advice. You can use ASIC Connect’s Professional Register to look up whether your broker is qualified.
Transparency and communication. A good mortgage broker should be transparent about their fees, commissions, and any potential conflicts of interest. You also want someone who is a good communicator, will keep you updated and is easy to get hold of.
Range of lenders and products. It’s no secret that brokers have professional associations with certain lenders, you just want to make sure these relationships are working in your best interests. Check that your broker has access to a wide range of lenders and mortgage products to ensure you’ll have plenty of options.
Benefits of going direct to banks
While mortgage brokers offer several advantages, there’s also some potential benefits if you snub their services and find a home loan yourself.
1. You know your decision will only be made with you in mind
Although it does seem like a good thing that you don’t pay mortgage brokers directly for their service, keep in mind that they are still a business, run for profit. Brokers are paid via commission, once they connect a lender and a borrower. ASIC regulations require brokers to prioritise clients' interests over their own, but if you go it alone, you eliminate any risk of your broker making a dodgy call.
2. Full range of options
By the same reasoning, brokers will tend to steer you towards lenders they have an existing relationship with. Many smaller brokers operate with only a handful of banks in their rolodex, which obviously doesn’t give you a healthy snapshot of the market. For reference, APRA data indicates there are more than 100 banks operating in Australia - and that doesn’t even include non-bank lenders.
Further, over the past few years there has been a proliferation of online, digital lenders who only offer their products direct-to-consumer. They have low overheads, and likely lower rates, and might not deal with brokers at all.
3. Established relationship
If you have a long-standing relationship with a bank, they may offer you preferential treatment through special discounts or loyalty programs, or a bundling discount if you have multiple financial products or home loans with them. As an existing customer at a certain lending institution, it could also just be more convenient to stick with them.
3. Streamlined process
These days, particularly at major banks, the process for mortgage applications is pretty streamlined. If you’re thinking about engaging a broker to save the hassle, a lot of lenders have online applications that can actually be filled out relatively painlessly.
And going back to those digital lenders mentioned earlier, many offer unconditional approval in only a day or two, and the application process can take as little as 10 minutes.
If you decide you’d like to venture into the mortgage market alone, you can compare some of the most competitive home loan rates out there using Infochoice.
Mortgage broker vs banks
Unfortunately for those of you weighing up whether or not to use a mortgage broker, there is no right answer. Some people will find a broker is able to find them a better deal, while others might be better off going it alone - it just depends on your situation. The below are some things you should factor into your decision.
Complexity of your financial situation. If you have unique financial circumstances; you’re self-employed for example, or have a low credit score, you might find a mortgage broker's expertise in navigating complex scenarios invaluable. Generally speaking, the more outside the norm your financial situation is, the more arduous you could find the application process, so using a broker might be more painless.
Time and convenience. If you don’t have the time to research and compare mortgage options, a mortgage broker can save you the hassle.
Existing banking relationship. You might have an existing relationship with a bank or lender, in which case it might suit you to go directly to them.
Cost. While many brokers operate on commission from lenders, this isn’t always the case. Sometimes, they will charge you a brokerage fee, so you’ll need to factor this extra cost in your decision.
Familiarity with the mortgage market. Expertise is arguably the biggest benefit a mortgage broker brings to the table. If you don’t know much about home loans, a broker could be a huge help, but those already familiar with the industry might find much of a broker's services redundant.