Lower interest rates, the 2016 Budget and a Federal Election – what does all that mean for property? Michael Yardney gives us an insight and a warning as well.
Andrew Mirams from Intuitive Finance explains what LMI or Lenders Mortgage Insurance is all about.
As a follow on from last week’s show when Bernard Salt talked about how our living requirements have changed and the impact of that on our housing, Nerida Conisbee from realestate.com.au tells us about a study amongst 28,000 highly engaged listings on their site they used to come up with Australia’s ideal home. She also tells us why buyers are willing to pay $100,000 more if they find it.
We ask Pete Wargent to explain why Australian investors are the least willing to embrace new technology when searching for an investment.
The head of one of the country’s biggest real estate groups says we have it all wrong when we use auction clearance rates as a measure of how the market is either improving or declining. He gives us some better indicators.
Jessica Darnborough gives us a look inside the Australian finance broking industry with some good advice about how to choose a broker.
Transcripts
Michael Yardney:
Kevin: With more and more lower interest rates on the landscape, and of course, the recent budget, what does that mean for property? Michael Yardney from Metropole Property Strategists joins me.
Good morning, Michael.
Michael: Good morning, Kevin.
Kevin: Everyone’s talking about this, aren’t they? What’s going to happen with property? What’s your take on it all, Michael?
Michael: As we know, recently interest rates have been lowered, and the expectation is that they’re going to be lowered once more, so interest rates may drop another quarter of a percent before the end of this year. Yes, everyone is wondering how is that going to affect property. I believe it’s going to put a floor under our slowing housing markets and it definitely will be welcomed by first-home buyers.
But I think the big factor in people’s minds at the moment is lower consumer confidence – some uncertainty about an upcoming election. A lot of people are a bit uncertain about their jobs. Interest rates have been lowered because the economy is not doing well. I think these other factors are going to make people just sit on the sidelines for a little bit, Kevin, and they probably won’t jump into property because of the lower interest rates, at least not just yet.
Kevin: Michael, you mentioned there about more rate cuts on the horizon. When will that happen, and what impact are they having on the market?
Michael: Many economists believe that there will be another round of rate cuts but not until after the election, so probably in August or September. The decision of the Reserve Bank really has taken a number of factors into account: the fact that our housing markets have slowed. APRA seems to be working well in that regard so it doesn’t have to worry too much about the housing markets.
It’s really more worried that our economy is slowing but inflation has almost stalled, which really means that our job growth, wages growth, and economic growth aren’t happening, so they’re trying to encourage it by, I guess, dropping rates more for businesses, who are hopefully then going to feel confident and employ people and buy new equipment. It’s working well in that side.
As for homebuyers, it’s going to allow people to pay off their mortgages a little bit quicker. I don’t think people in these more uncertain times are going to rush off and upgrade their homes or buy bigger houses; what they’re probably going to do is take advantage of the lower rates and get those financial buffers in place.
Kevin: We are actually seeing the banks, too, passing on this recent decrease, aren’t we?
Michael: It happened much quicker than in the past and to a greater degree, where most of the banks have passed on the full cut – at present, Kevin. But we know that the banks are being squeezed because of the cost of their funds from overseas. That’s where they get a lot of their money because Australians aren’t putting money into their deposits anymore. That’s how, in the old days, you used to have a savings book and that’s where banks got their money. Now they get a lot of their money overseas, and that’s more expensive.
Also, they’re having to keep more cash on hand because of APRA’s changes, so it’s possible to boost their profits they’re going to do an out-of-cycle rate rise again, like they did last year. That’s definitely on the cards.
Kevin: What are consumers doing with these decreases in interest rates, Michael? Are they actually paying their loans off faster, or are they taking the decrease?
Michael: What’s happening is they’re paying their loans off faster, in general. They’re getting rid of credit card debt. Most households are in very good shape, but at the end of last year, due to a couple of stimuli from the government and people feeling more confident, consumers started to spend a little bit more, and we’re seeing that household saving is decreasing a bit.
That’s what the government wants. They want us to be encouraged to spend and they’re encouraging businesses to spend because that’s what makes the dollars go around and our economy go around and pay people’s wages. That’s that interesting mix of not taking on too much debt, not overspending and using your house as an ATM but also spending enough to keep people employed.
Kevin: Always good talking to you, Michael Yardney from Metropole Property Strategists. Thanks, Michael.
Michael: My pleasure, Kevin.
Andrew Miriams
Kevin: I was approached by a young couple recently who were very concerned about getting into their first property and, I guess like a lot of young people, have been trying to save but they can’t get a full 20% deposit and were very concerned about the LMI – lenders mortgage insurance – and asked me what it was all about. I thought I’d get more detailed insight into LMI. Joining me, Andrew Mirams from Intuitive Finance, a regular contributor to our podcast.
Andrew, what is LMI? What is lenders mortgage insurance?
Andrew: Hi, Kevin. A great question. I think there’s still a little bit of a mish out in the markets about what it is. Firstly, lenders mortgage insurance is these companies that sit around the banks. The banks want everyone to have a 20% deposit plus their fee, so they’ll lend you 80%. They’ll put that on their own books and that 20% is basically their buffer for any market movement.
Can you go over that? If you have a smaller deposit, you can do that, but then we have a group of mortgage insurers that actually insure the debt. They actually then do their own assessment on whether you’re a good risk and they insure the debt. What that means is it’s the only insurance in the world, I guess, that you pay to insure someone else. What the lenders mortgage insurance is doing is actually securing the bank’s position in case of default.
Kevin: It’s hardly fair, is it?
Andrew: Well, I think if you don’t have it, you don’t get into your property, so I think it’s actually a necessary evil in our markets, because for the young people of today, it’s not so much the holding costs with rates being at all-time record lows; it’s actually their ability to save a deposit and get into the market. That’s becoming the harder thing. So I think mortgage insurance has a definite opportunity within the market to use. We have both homebuyers and investors using it all the time.
Kevin: Give me an idea on the costs involved in LMI.
Andrew: There’s not a set formula because there are a number of insurers; they all have different premiums. Generally, what they do is it depends on your actual loan-to-value ratio. What the loan-to-value ratio means is if you have your loan at $400,000 and your property is worth $500,000, that’s the 80% LVR is what we call the acronym. If you can only do your loan at $450,000 against your property at $500,000, that’s then your 90% LVR.
Now, the premiums go up in 2% increments so whether you borrow 82%, 84%, 86%, 88%, etc. in increments. For an investor, it’s kept at 90% nowadays, and for owner-occupiers, they’re still able to go up to 95%.
It’s basically your risk and reward. The more you can contribute to your property, the lower the mortgage insurance will be because their risk is actually lower. There is not actually a set formula or premium that you can just say that’s the amount, but that’s how that’s roughly calculated. There are also a couple of tiers in your loan amount. Under $500,000 and over $500,000 tend to attract different premiums, as well.
Kevin: Does the premium have to be paid in a lump sum, or can it be part of the loan?
Andrew: There are two parts to that question. It’s a one-time lump-sum payment, but most of the time, you can actually capitalize it onto your loan, so it’s not actually an on-cost, like your stamp duty that you need to be able to fund up at the start. You can add it and capitalize it on top of your loan.
Kevin: Are there any mortgages where LMI wouldn’t apply, as in, say, a reverse mortgage?
Andrew: Yes, there are in those circumstances. There are also certain high-income-earning professions that lenders will waive their right to mortgage insurance because they’re trying to attract a certain profession; they know that they’re higher income and things like that. Yes, there are opportunities. There are some lenders that will do an 85%. Again, it’s a bit of a give-and-take relationship. You might not pay the mortgage insurance but you’ll pay a little bit more in interest rates. No free ride, Kevin.
Kevin: No. We learn that in life very quickly. What about off the plan, Andrew? Does it apply there?
Andrew: You can get it for off the plan. Off the plan is a really interesting market because as we know, when a developer is actually building something, they have their margins built in because they’ve paid someone else to market and, then there are commissions and fees. It’s not uncommon… It doesn’t happen all of the time. There are really good projects out there and the market might have been kind where the purchase price will marry up to the actual valuation at the time. It’s not uncommon for valuations to come in a little bit less or lower than what the actual client has purchased.
Then you can take mortgage insurance out against generally the lower of the two – or most of the time now. Because they’re greater than a 12-month purchase, the valuation will be what the lender uses and then you’ll sign a mortgage insurance premium based on the valuation.
Kevin: I imagine it might have happened in Sydney where people purchased a property and maybe it went up in value. They were paying lenders mortgage insurance then they wanted to borrow against the increased equity. Do you need to adjust that insurance?
Andrew: Yes. Once you have the insurance premium in place, you can actually do what we call a top-up. What the lender does is if you, let’s say, paid the $5000 in your first application and then you want to take out a little bit more equity, you’ll only pay the difference. The premium for the new loan and the new loan amount might have been 5½; you’ll actually only pay that $500 in the differential being the top-up mortgage insurance. It’s a really good strategy we use for our investors to keep that insurance in place, and if I’ve used it at 90% from the start, we’ll try to keep that policy in place and take it back up to 90% again and just pay a top-up premium. It’s a really great strategy for our investors.
Kevin: Would a way to avoid paying LMI be to get some kind of a family guarantee?
Andrew: Absolutely. For first-home buyers, that’s a great opportunity. Like we said from the outset, it’s getting harder and harder for our young people today to save that required deposit, so using a family guarantee – which is where the parents use the equity out of their property to assist a young person getting both a home or an investment; it might be a great way for them to start adding investing, as well – they can put their property up and that way, they’ll avoid the insurance.
Kevin: If I’m not backed for finance on a property purchase because I don’t qualify for LMI, can I find out why?
Andrew: It’s generally the same reasons as what you would get for a lender. The answer is yes; however, because the insurers are taking on a greater risk, it’s their calculators and their reasoning and rationale around whether they’ll accept the property in the first place. So that’s where some of those off-the-plan properties, they might have a certain exposure already to that development or they might be postcodes they don’t want to lend to.
Then if clients are actually stretching themselves a little bit but it works at the bank, it still doesn’t mean it’s a guarantee to work at the mortgage insurer because they have stricter and tighter policies around, because again, they’re insuring the lender and they’re going to be at risk if a client was to not make their payments. The lender basically knocks on the insurer’s door and says, “Thank you, we need those funds back,” and then it’s up to the insurer to pursue the client.
Kevin: Always good talking to you. Andrew Mirams from Intuitive Finance. Andrew, thanks for that insight into lenders mortgage insurance. I appreciate your time.
Andrew: My pleasure, Kevin. Thank you.
Nerida Conisbee
Kevin: The ideal home is a concept that varies for different people, but if you had to design the most statistically sought-after home in Australia, what would it look like? Now we can tell you, because RealEstate.com.au has done some research, and they’ve come up with the answer for us. Joining us to tell us what that might be, chief economist for the REA group, which is the parent company of RealEstate.com.au, Nerida Conisbee.
Nerida, what does the ideal house look like?
Nerida: What we did is we had a look at the most popular searches on RealEstate.com.au. We have about five million people searching every month, and we saw some really distinct trends as to the types of things people are looking for in a new home. So what does a perfect house look like? It’s bigger, it has more bedrooms, two bathrooms, two garages, and it’s on quite a big block – on a block of around 665 square meters.
Kevin: It’s interesting when we look at so many contemporary homes around Australia now being constructed on smaller blocks of land, too. We want both. We want both the bigger house and the bigger block of land. Is it realistic, Nerida?
Nerida: When we have a look at the size of new blocks, they’re typically around 480 square meters, so it’s probably not realistic. I think 665 square meters would be considered a very large block at the moment in Australia, and certainly for new homes, you’d probably be unable to get a block of that size. You could possibly get one, but you’d certainly be paying a significant premium to access it.
Kevin: Yes, there aren’t too many places in Australia where you can get a 600 square meter block. Did it vary much around Australia? In other words, were the styles of houses different in Queensland, New South Wales, and Victoria?
Nerida: Yes, it was interesting. Tasmanians were looking for the biggest blocks. They were looking for around 750 square meters. South Australia, Queensland at around 680, and New South Wales were the smallest. They were looking for under 650. So it did vary across states.
The size of the home also varied quite a lot. If we had a look at the southern states – Tasmania, Victoria, South Australia – they were typically happier with smaller homes – so three bedrooms – but if we look to the warmer climates, particularly New South Wales, Queensland, and Western Australia, they were looking for four bedrooms, so bigger homes in those states than what we saw in the southern states.
Kevin: Can you line that up with lifestyle? In other words, for instance, in the warmer climates where they’re looking for bigger homes, would that include more outdoor entertainment areas?
Nerida: Not particularly. If you have a look at New South Wales, they were quite happy to live on small blocks that have big homes, so it wouldn’t really suggest that they’re wanting more outdoor areas than, say, Tasmania. It probably has a little bit to do with the cost of land in those areas, but it was certainly surprising that people in warmer climates want more bedrooms, because that was probably the key finding, that they’re wanting an extra bedroom for whatever reason, and it was more apparent in warmer climates.
Kevin: With everyone wanting bigger and better, Nerida, are they willing to pay more for it?
Nerida: Yes, they certainly are. The median house price at the moment in Australia is $550,000, and people were prepared to spend an extra $100,000 on getting a bigger home. It varied again across each of the states.
If you have a look at Western Australia, they were the most likely to spend more on their homes relative to the median house price. I think the median in Perth right now is around $495,000 and they were prepared to pay around $700,000, so willing to spend a $205,000 premium. The premium that Queensland residents were prepared to pay was less. I think the median in Queensland now is around $470,000; they were prepared to pay up to around $550,000. There was a bit of regional variation, but on average, around $100,000 more to get a bigger home.
Kevin: What about first-home buyers? Are they willing to sacrifice, or do they want to go straight to the perfect home?
Nerida: We didn’t specifically look at first-home buyers. It would be interesting to have a look. I think for many of them, they would be priced out of the perfect home. If you have a look at what happened to house prices nationally, and if you have a look at what happened to affordability, it’s getting quite expensive to access major markets, but it would certainly be something that we would like to have a look at, to see whether first-home buyers are getting what they want in the market. It would be an interesting further study, I think.
Kevin: Have you got any figures on how many people in Australia are dissatisfied with the home that they’re currently living in?
Nerida: Yes. The Australian Bureau of Statistics data has shown that around 50% of households are dissatisfied with the size of their homes. That’s quite consistent with our findings. It’s showing that at least half of households want to live somewhat bigger, and certainly, these findings are showing that more bedrooms are very much sought after, as well as a bigger block of land.
Kevin: Great talking to you. Nerida Conisbee from REA, thank you so much for your time.
Nerida: Thanks, Kevin.
Pete Wagent
Kevin: When it comes to investing, Australians apparently are the least willing to embrace new technology. That’s according to a study that was done recently, admittedly overseas, but it was a global study, and they did actually highlight the fact that Australians are pretty much behind the 8-ball when it comes to using technology. I want to get a view on this from Pete Wargent from Allen Wargent Property Buyers.
Pete has clients from all over the world, so Pete, I guess you’d be fairly well across this. Would you agree with that assessment? And let’s look in detail at it.
Pete: Yes, sure, I think as a general rule, Australians are probably a little bit behind the curve on the idea of using technology in investing. Particularly Asia is leading the way, and then Americans, as well, but generally speaking, Australia is just lagging behind.
Kevin: Some of the results out of the survey, just to keep it in context: 4103 high-net-worth investors aged from 40 to 75, and 1267 high-net-worth investors aged between 30 and 39, so they spanned quite a lot of age groups, and they even went across 19 global markets to get these results. It showed that Australian investors trail behind their global counterparts, with only about 4% responding that they’re prepared to embrace technology. It’s pretty low when you compare it to some of the global averages of around 38%, Pete.
Pete: Yes, I think there are two aspects. One is geographic, and another one is related to age. You generally find that people under the age of 40 in Australia are a bit more open to the idea of using technology in investing, probably around a fifth, but for people aged over 40, then the numbers drop away very sharply to around 4%. I think to some extent, Australians are falling behind in this regard.
Kevin: Let’s have a look at it in terms of property and does it related to the property market? I guess a lot of us are reluctant to look outside of Australia for property investment opportunities.
Pete: It definitely does. I think technology in investing originally came to light with the idea of online brokerages, which really increased the frequency of trading and possibly led to shorter-term time horizons in investing, but we’ve spread now towards mobile investing, automated advice and even the use of apps and social media for the purchase of investments.
As it relates to property, though, I think we’re going to see some kind of digital disruption to the industry, perhaps undercutting of agents’ fees. Obviously, most people now look at online listings, but also for investors, there’s much more research that can be done online today, so looking at development approvals, flood maps, census data, and suburb data, and so on. There’s stacks of data that was just never available before.
But the fact that there’s more information, you still can’t remove that human element entirely, and I think some experience is important.
Kevin: You talk about digital disruption, and that’s something that we are experiencing, particularly in the Australian market right now with a lot of third-party sites offering to put you in touch with the best agent in your area, and then, of course, they’re getting a commission, as well. We have all these disruptions happening. What impact do you think that’s going to have on us as consumers?
Pete: I think there’s definitely a move towards cutting out middleman activity, and people are very much looking at a DIY approach to a lot of their investing. That can apply to property, too. I think we’ve seen that traditionally in Australia, Aussies have often favored a DIY approach. Self-managed super funds is a good example – extremely popular. But I think in general, Aussies should embrace technology, and that goes for investors and advisors.
Kevin: What about the countries overseas? I think the report highlighted the US and Asia as two of the countries that probably lead the way in terms of purchasing their investments online. You mentioned apps. Is that the only technology that we should be concerned about?
Pete: Apps are often used to purchase investments, particularly in Asia and America, but as I mentioned, online brokerages have been around for a long time. There’s the rise of automated or robo advice – so portfolio recommendations – that’ll become increasingly popular, but even just general social media – not just property listings, but chat forums, investor groups, and so on. There’s a very wide range of technology that could be embraced as it relates to investing.
Kevin: I guess it’s fairly important, too – and you mentioned this – that face-to-face relationship you can build up with advisors. The online world is really supplementary to that. You still need to get face-to-face.
Pete: I think so, though even there, technology is infiltrating and people are embracing Facetime, Skype, and so on, but as I mentioned, I think that as the automated advice industry becomes a bigger share of the pie, people will still want an element of human interaction and human experience.
Kevin: Good talking to you. Pete Wargent from Allen Wargent Property Buyers. Thanks for your insight into that issue, Pete. I appreciate your time.
Pete: Pleasure, Kevin.
Grant Harrod
Kevin: Quite often, when we’re looking at market sentiment, we look at a number of barometers but the one that seems to come up all the time is auction clearance rates. There’s one school of thought that says it’s not a good enough barometer on its own to measure what’s really happening with the market. This is a blog article that was recently written by Grant Harrod, who is the Chief Executive of LJ Hooker.
I guess, Grant, you would well and truly know whether or not it is a good measure. What’s your thought behind this? Welcome to the show. Thanks for your time.
Grant: No problem; thank you. Look at the national stats around the number of properties that are sold by auctions versus private treaty, and it averages around 27%. Clearly, more than two-thirds of properties are sold outside of auctions through a private treaty arrangement.
If you look at it by state, in some states, it’s actually as low as less than 10%. Certainly, New South Wales and Victoria – or specifically Sydney and Melbourne – are the markets in which you tend to see auctions used a little bit more regularly, but if you move into regional locations or into other states around Australia, it’s actually not a regularly used method of selling a property.
The other side of this is that there are a lot of properties that probably start life in an auction process because, really, we see it as more of a method of marketing than necessarily a method of transacting a property. They’ll start with an auction campaign, which has the benefit of concentrating the process into a three- to four-week period, and which obviously really benefits the vendor and the purchaser, and also the agent, as well. A number will sell before auction, and then a number will also sell after auction. Checking the clearance rate on the day is – in our view – not necessarily an indicator of the health and well-being of a particular property market.
Kevin: Just to take that thought one step further too, Grant, the day of the auction is influenced by so many factors, not the least of which is whether or not the property has a realistic expectation put on it by the seller, which is a direct reflection sometimes on the activities of the agent, how well the agent has been educating the seller, ready for them to meet the market.
Grant: Correct. I’d also extend that to suggest the vendor, as well. You can imagine in a market like we’re in at the moment, where you do have a number of real estate markets that are coming off a high point, managing the expectation of the vendor is quite challenging.
They’ve probably been considering selling their property for quite some time. They’ve been tracking the market, they’ve seen the home down the road go for a particular number, and they’ve decided, “That’s my price. I’m going to put my property on the market.” Of course, the markets are moving around quite a fair bit at the moment, and therefore, that may not necessarily be what the purchasers are prepared to pay for that market.
An auction process is valuable in the extent that it gives both the buyer and the seller a very clear visibility to what the market is prepared to pay. But more often, from an agent’s perspective, it’s actually managing the vendor – the seller’s expectation – that is the critical part.
Kevin: Given that we can’t rely on those auction clearance rates as a barometer for the market, as you so clearly pointed out, what are some of the indicators that you would suggest consumers should be looking at to gauge where the market’s at?
Grant: I think one of the most [4:08 inaudible] measures is time on market. As an example, in the Sydney market and certainly in some of the markets that are the closest to the CBD, we’re seeing a very short time on market. There’s a lot of buyer demand. There’s a shortage of listings. So when properties are coming on market… And some are actually being sold before they come on market. Agents are reaching out to their databases in advance of actually starting the marketing campaign for the property and in many situations, selling it before a campaign has even been undertaken.
But contrast that to, say, Perth. The average time on market in Sydney could be as low as 20 days. Then you go to Perth, and the average time on market there now is 60 days, if not heading now towards 70, even 80 days, where you obviously have a lot of listings, a lot of stock, but not enough buyers. For us, one of the key measures of the state of a real estate market is what is the average time on market for properties?
Kevin: Great advice, Grant. I really appreciate your time and your insight there. Grant Harrod, who is the Chief Executive of LJ Hooker.
Grant, thank you very much for your time.
Grant: Thank you.
Jessica Darnborough
Kevin: More and more, we’re seeing investors right across Australia and New Zealand start to use mortgage brokers, more so than we’ve ever seen before. What are the pros and cons, and why would you want to do it? Jessica Darnbrough from Mortgage Choice joins me.
Jessica, thank you for your time.
Jessica: Thanks for having me.
Kevin: How common is it for investors now to be using mortgage brokers? Are we seeing it grow?
Jessica: We definitely are seeing it grow, and it is becoming increasingly common for investors to use mortgage brokers. Approximately 53% of all home loans are written through mortgage brokers these days, and the same level is for investors, as well. Of the 100% of home loans, about 30% are investors, and of that 30%, 50% are done through mortgage brokers, so they definitely have a big share of that pie.
Kevin: Yes, it’s certainly growing. There’s a lot to choose from if you jump online. How do we make a good choice? What are the steps we should take, and what do we look for?
Jessica: There are a couple of different ways to find a good mortgage broker. In the first instance, you want to talk to your family, your friends, your work colleagues – anyone who has a mortgage, anyone who’s been through a mortgage broker. Ask them about their experiences, who they dealt with, the pros and cons. They’ll be able to give you some really great feedback on whether or not that’s a person that you’d want to touch base with.
In addition, it also helps to get online, do your research, see which brokers are in your local area. It’s always good to work with a local broker where possible because they’ll know the local area, they’ll be able to give you some real estate information, and just generally provide you with some comfort because they know the local area so well.
Kevin: Yes. Of course, we’re seeing real estate agents now get very, very close associations with mortgage brokers. Is that a good way to go? Is that such a good idea to have the real estate agent that closely involved in the loan process?
Jessica: What it is more than anything, is they just refer their clients and customers if they come to open houses and things like that on to mortgage brokers if those clients make it clear that they don’t have their finances sorted yet. They’re not exactly involved in the home loan process, but they do form a nice referral partnership.
While at Mortgage Choice, we don’t have a national alliance – we have one particular real estate agency – some other broking companies across the country do. We don’t have that, but we do encourage our brokers on a local level to get involved with their local real estate agents because they make a really nice referral partnership.
Kevin: Do brokers need to specialize in certain areas – as in commercial or residential – or can they go across the whole lot?
Jessica: Generally speaking, mortgage brokers will go across the whole lot. They’ll be able to look after mum and dad, investors, seasoned investors, negative gearing. They can do really complex investment structures. They can do the whole bing-bang lot. Regardless, if you want a personal loan, a commercial loan, or a residential home loan, your mortgage broker will be able to help you out.
Kevin: They have to keep pretty well up to date, haven’t they? If you go to a bank, they’re only concerned with their own loan type structures, but a mortgage broker has to be across all the lenders. There must be a lot of learning involved.
Jessica: There certainly is, and that’s why a lot of the big broking groups – all of the broking groups, in fact – hold a lot of professional development days for their brokers to make sure that they’re constantly learning and keeping on top of the latest policy and pricing changes. In addition to that, they supply them with exceptional software platforms, so brokers are always knowledgeable about who’s doing what, what lenders are offering what pricing, and what policy changes have been made. They’re really keeping abreast of what’s happening in the market.
Kevin: Do you think because we’ve become so busy, that’s a reflection of why brokers have become so popular? Do you think that it’s easier for us to do it that way?
Jessica: There’s definitely a level of ease there. The mortgage broker does all of the legwork for you, which is really handy, because when you’re taking out a mortgage, even if you just go in for your residential, standard, vanilla-type loan, that’s still quite complex and there’s still a lot involved.
Your mortgage broker will be able to sit down with you. They’ll take you through it all. Then all of the grunt work, all of the negotiating the right price, all of the picking out the right lender, they can definitely do that for you, and that’s a big time saver. It’s also a big comfort thing for Australians.
In addition to that, your brokers are well-educated. They do it every single day, hundreds of loans a year, so they know exactly what they’re talking about and they know exactly what they’re doing. If you haven’t been involved in the mortgage market before, you don’t have a mortgage, or you’ve only had one and you’re looking to maybe purchase an investment, you’re probably not going to be up to speed with exactly how a mortgage works, exactly how the system operates, and a mortgage broker will. That’s why you go to them – for that professional next-level advice.
Kevin: What preparation should I do before I go and see the broker, and what should I be taking along with me?
Jessica: There are a couple of things you should take with you. In first instance, take some form of identification: a driver’s license, a passport, those sorts of things. It’s a good idea to also have any recent pay slips on hand, potentially the last three months’ consecutive pay slips because that can show evidence of income.
Generally speaking, what will happen is once you touch base with a broker and suggest that you want to catch up with them and you are ready to look at your financial situation and you’re taking out a home loan in the near future, your mortgage broker should send you a little bit of a to-do list. It will have a fact find attached to it, just to get a little bit more about you: where you work, how long you’ve worked there, number of children, that sort of thing.
They’ll also send you a list of things that you need to bring, whether or not that be income statements, statements of assets and liabilities, statements around debts, those sorts of things that you might have. They’ll tell you what to bring, but generally speaking, if you’re buying with someone, if you can, make sure both of you are at the meeting if you can because it makes the whole thing run a lot more smoothly and it means the mortgage broker doesn’t have to do multiple meetings with you.
Kevin: Good idea. What if things come off the rail – sometimes they do – and I have a bit of a problem with a broker? Is there a professional body I can turn to?
Jessica: Absolutely. In the first instance, turn to your broker. If you’re getting no love there, turn to the franchise group they work under or broking group they work under. Again, if there’s nothing there, then there’s also the MFAA. The MFAA is the Mortgage Finance Association of Australia, and you can raise any complaints with them because most mortgage brokers – if not all mortgage brokers – operate under either them or the FBAA. Depending on which industry body your broker works underneath, contact that industry body because they should be able to help you with your concerns.
Kevin: Great talking to you. Jessica Darnbrough from Mortgage Choice. Thank you for your time, Jessica.
Jessica: Thank you so much.