Mortgage market update: tighter credit and less service

The mortgage market is pretty challenging at the moment. So much is changing on a weekly basis – interest rate discounts, credit policy and service platforms and processes. I estimate it probably takes us twice as much work to establish a loan than it did 12 to 18 months ago.

Take 2 minutes to read the short update below. This update will be particularly useful if you expect to change existing or apply for new loans in the next year or so.

Interest rate discounts and price competition

Interest rate discounts are changing regularly as the banks fight for market share – particularly for owner-occupier loans. The banks have been warned to reduce the amount of investment lending and avoid interest only repayments on home loans. As such, they discount less aggressively for these type of loans. As a result, some lenders now offer four different interest rates depending on whether a loan is a home or investment loan and whether the repayments are P&I or interest only.

It’s difficult for some borrowers to understand why a loan’s interest rate discount is different simply because the repayments are structured differently – but that’s the way it is at the moment. It seems a bit unfair on the face of it – and I would argue that whoever’s decided to take this approach didn’t consider the client experience. In the scheme of things, it’s not that big a deal as I’d expect that interest rate discounts will vary over time. We’ll review your discounts every 12 months and make sure they are competitive.

Credit policy and borrowing capacity

Lenders have made some major changes over the last 12 months to the way they calculate a borrower’s capacity. This has reduced most people’s maximum borrowing capacity quite significantly – some clients’ borrowing capacities have halved. In addition, lenders have changed maximum loan to value ratios – particularly for investors and for particular locations where there have been (or will be) a lot of new apartment stock on the market. The checks that lenders are undertaking now, and the amount of questions they are asking, has also increased significantly. There’s no solution to this other than being prepared.

In short, applying for a new mortgage can be a more arduous and time consuming process compared to 12 to 18 months ago. It is important to match a client with the lender that will suit them best – even more so in a dynamic credit environment like this one. Virtually all of the applications we work on are still approved – it’s just the process takes more time and effort on our behalf. But that’s what we are here for.

Service levels, delays and errors

The banking industry has never been renowned for delivering great customer service. The consistency of service is one of the things they really struggle with and this is what makes it difficult (frustrating) dealing with them. Also, empowering bank staff to resolve issues and/or make client-centric decisions on the spot is something that’s becoming a lot less common too.

For some reason the level of service provided by the banks in probably the last 6 months has deteriorated significantly in my opinion. I’m uncertain as to what has caused this but perhaps they are struggling with the all the changes that have been occurring. I estimate that my team spends 30% or more of their day just trying to fix bank errors for clients. Wrong fees, incorrect loans repaid, not issuing credit cards correctly, making false representations with respect to previously approved discounts, wrong interest rates, stalling tactics and delays, broken promises, offsets not attached correctly and the list goes on.

I can’t recall a time in the past 14 years where the service provided by the banks has been worse than it is today. Everything moves in cycles so I’m sure it will eventually improve. But for now, be warned… maintain low service expectations and rest assured that when a problem does arise, that we’ll jump straight onto it and resolve it for you. We’ll always fight hard on your behalf.

Outsource this pain and be prepared

So much can potentially go wrong when it comes to selecting a bank in today’s market. How do you know if you have the best interest rate discount, have you chosen a lender that’s going to understand your requirements and approve what you want and then what happens if (when) errors occur? The last thing you want to do is spend hours on the phone explaining your problem to four different people!

I believe that now more than ever (in this environment) we offer a significantly more valuable service to our clients. Not only do we save a lot of time and frustration but we get the opportunity to apply our skill, knowledge and experience to ensure that our clients’ needs are met. It’s not always a perfectly smooth experience but we get there in the end. We always put our clients best interest first and diligently and tenaciously work away until the client’s needs are fulfilled. We work for you, not the banks.

My advice is if you are contemplating refinancing or establishing a new loan in the next 12 months, lets discuss your plans sooner rather than later to give us plenty of time to organise everything and give us the best chance of avoiding any “issues”.