9 October 2000
THE range of choice available to people looking for housing finance today has never been greater. The days of banks controlling the market are long gone, as non-bank lenders and mortgage brokers have entered the field. The end result is a more competitive market where mortgages can be tailored to meet individual customers' needs.
This competition is evident in two principal ways. First, as the banks lost market share they had to acknowledge there were new players on the block and began tailoring their mortgage products to meet customer needs. Second, customers become more aware of the number of mortgage choices on offer and their capacity to play one lender off against another.
The industry magazine Homemover describes this trend in the following way: ``The 1990s (ushered in) a mortgage revolution with an explosion of innovative and competitive home loan products.
``New lenders have sprung up, under-cutting the major banks' interest rates and the banks have fought back with cheaper and more innovative products of their own.
``Never in the history of home lending has the consumer been given so much choice."
Certainly the days of ``home loans being just home loans" are gone. As Homemover says, in those days ``all the banks had the same standard rate, so shopping around was pointless. You couldn't even shop around if you wanted to, as you had to have a long savings history with the bank and a very sizeable deposit (more than 25 per cent) before the bank would even consider you".
Today, it is not a case of the borrower and the bank having a relationship with the bank very much the dominant partner. More often, a mortgage broker is involved, making it a three-way relationship.
Mr Tim Bolton, a principal partner at Mortgage Solutions Australia, says the number of organisations lending money has increased from about 15 to 200 in the past 20 years. That is a significant trend considering the industry was worth about $230 billion at the end of 1999, according to the financial services group Wizard.
It was Aussie Home Loans and RAMS Home Loans that helped spark this revolution. They began using advertising to push their products, alerting consumers to the fact they had options.
At the same time the Aussies and RAMS of the mortgage world were cutting into the banks' traditional business, mortgage brokers came along to secure another slice of the market. And it is not just traditional brokers. There is a growing number of online brokers operating in this competitive market.
In theory, it all adds up to consumers getting the best deals. However, Mr Bolton warns that this competition does not necessarily mean consumers are always on the winning side.
``Of the 200 lenders in the market, only about 10 per cent pay a commission, so that using a broker can restrict to you to about 20 lenders - and then only some of these loans are available to the broker," he says.
Traditionally, brokers receive a commission from the lender by way of an upfront fee and/or a trailing commission, which is a percentage of the loan paid for every year the loan exists. The service to you from the broker is then usually free.
A mortgage broker, used properly, can still give a consumer a decided edge in what is a very competitive market.
Mr Bolton again. ``Low interest rates, offsets, redraws, lines of credit, split loans and lenders of all shapes and sizes not only means a smorgasbord of loans to choose from but a month of Sundays trying to research them."
Mr Greg Rosenbrock, a principal of Mortgage Wisdom, adds that consumers can still be ``stressed out and intimidated" by buying a house. ``I know the largest contributory factor to the stress of home purchase is that people don't feel they are being treated as individuals by the lending institutions," he says.
``With the home-lending market the way it is, it is easy for borrowers to become confused with the various interest rates, terms, charges (which are not always obvious) and the loan types."
Mr Bolton says in such a market it is important the industry is prepared to self-regulate itself, noting that a code of ethics is now in place.
``It's a good start," he says. ``The more lenders you have, the more need there is for brokers and the greater the need for independence.
``My answer to anyone wanting to know what to do is do your research and remember there's no substitute for good advice."