Going direct to a home lender
By Peter Boehm
In an earlier article we looked at the pros and cons of using a mortgage broker to get a home loan.
This time, I’d like to examine the advantages and disadvantages of the alternative approach – that is, going straight to a lender.
The banks
In Australia, the major banks currently control more than 85 per cent of the home loan market – a position they’ve consolidated through acquisitions (Westpac’s purchase of St George, the Commonwealth’s buying of Bankwest) and via the effects of the global financial crisis.
Essentially, the majors have almost total control over the market: a situation that won’t change until the world economy improves and government policy opens the door to more competition from smaller banks and non-bank lenders.
If it’s almost inevitable that your loan will be placed with a major bank, you might ask what the point is of not going directly to a bank yourself at the outset. The answer is that a direct approach still has its pros and cons, and whether or not to go direct remains as much a personal as a practical choice.
Some of the advantages of dealing directly with a bank are:
It’s convenient
When you’re dealing with a big bank, you can choose to engage with them when and where it suits – at a branch, over the phone or on-line, even at home through a mobile lending manager.
You’re important to them
Banks spend a lot of money marketing their products in order to get you to buy directly from them. One reason they do so is that it’s cheaper when they don’t have to pay commissions to an intermediary. To get and retain your business, their customer service needs to serve you as well as or better than the competition: something that should work out in your favour (but doesn’t always).
You can negotiate better terms
If you have a good credit history, you can often negotiate a better price or better terms on your loan – perhaps reducing your interest rate or eliminating certain fees. When you deal directly with a lender, you’re more likely to get these savings.
The banks know their products
When dealing with the bank, you’re dealing with the people who know their products best. They can help you to choose a loan that suits, and guide you through the underwriting process.
Packaging products
When you take out a mortgage to buy a home or investment property you are going to need other banking products like a savings account, transaction account, insurance, credit cards, investment products and general financial advice. Banks offer these other products which when packaged up with your home loan can save you money in interest (by getting a cheaper rate) fees and charges. All of these can be arranged at the time of your loan application.
Of course there are some disadvantages when dealing directly with a bank, which may include:
Limited product choice
Banks offer similar types of loans, but this doesn’t mean that each bank’s list is as comprehensive as another’s. Some banks might not offer products in markets they don’t want to be in, such as ‘high loan to value’ or ‘low-doc’ loans. You could therefore miss out on the best loan type for you because your chosen bank doesn’t offer it. (For information on loan types, see my article Which home loan is right for me).
Do it yourself research
Shopping around for the best loan and lender takes time and effort. While technology has simplified the process, you’ll nevertheless have to devote your own resources to the task, rather than have someone else to do it for you.
Different underwriting processes
Bank’s underwriting processes vary. Borrowers – particularly those with unusual or adverse financial backgrounds – might be refused a loan at one bank which another bank would have granted.
If that happens to you, the declined application may turn up on your credit file, and this could adversely affect your prospects of obtaining a home loan now and in the future. In such circumstances, it may be better to get advice from an intermediary first.
Patchy service quality
We all know that service can vary between banks. Most are working hard to improve this aspect of their business and there are some stand out performers, like St George who usually do well in customer surveys.
But a CANSTAR CANNEX survey conducted earlier this year found that among the big banks, respondents thought improvements in customer service standards were needed in the areas of branch and call centre service, staff friendliness and problem handling – none of which you want to experience when making the biggest financial commitment of your life. This is not to say that service is consistently bad, just that there are some areas where it has to get better.
Stress
When approaching a bank directly, you’re flying solo. For some people applying for a home loan can be emotionally draining. Having to deal with a big bank at the same time can compound the process. If you don’t think you want the hassle, you might consider having someone else do it on your behalf.
Summing up:
Currently, around six in ten Australians choose to approach their home lender directly.
Whether to go direct or through an intermediary is a personal choice, and there’s no right or wrong answer. It’s all about what makes sense for you.v If you do want to go direct, the good news is that you have an array of free online tools and resources that will help you search and compare loans - selecting and applying for a home loan has never been easier. Just be sure to remember to shop around and compare products and lenders before approaching them direct.
Thinking about buying a home? Visit Our Home Sweet Home for information on home buying, home loans and more.
Important information:
This information should be used as a guide only. It is neither the provision or legal or financial advice. No warranties are given as to accuracy or completeness. You should seek your own independent legal and/or financial advice.