Two sides to the broker’s coin

By Susan Edmunds – New Zealand Herald

As the property market shows signs of rejuvenation, banks are loosening the purse strings and relaxing their lending criteria.

The value and number of loan approvals is well up on the beginning of the year and more banks are lending to borrowers with deposits smaller than 20 per cent.

But banks that do not deal with brokers – BNZ and Kiwibank – have been doing a lot of the lending.

In the quarter ending December last year, Kiwibank had the most new residential business of any of the main banks, and in the most recent quarter, BNZ and Kiwibank made up the top three with ASB.

So what benefits do brokers offer would-be home buyers in the current market?

Between a quarter and a third of New Zealand’s mortgage business is done through a broker, who takes a loan application, finds a suitable lender and should advise on the structure of the loan.

John Bolton, of Squirrel, says he prefers to be called a “mortgage adviser” than a broker.

“The reason is that advice is such a critical part of a mortgage, which is often the largest financial transaction most people will do. Brokering suggests simply shopping a deal around banks. In reality our role is providing a helping hand through the whole transaction and beyond.”

He says his services can be especially useful to people who are a bit “outside the square”.

He says borrowers get more advice from a broker than they would receive from the bank. And because they know what the different lenders’ credit criteria are, a client only needs to have one conversation to be matched with the right bank.

One of the key problems for first-home buyers, though, is that Kiwibank and BNZ, which both do not deal with brokers, are two of the few lenders offering loans up to 95 per cent of a property’s value.

A BNZ spokesperson says as every home loan application is considered on its own merits, the bank relies on its conversation with the customer to build a thorough understanding of their finances and provide a loan suited to their circumstances with repayments they can afford. It has no plans to start working with brokers.

“We’ve not used brokers because our customers’ needs – especially in a recession – are best met by speaking with them rather than through an unknown third party.”

Kiwibank has been conducting a trial with one group of brokers, to see what quality and level of business they bring in. Spokesman Bruce Thompson says there are cost advantages in the bank working directly with the customer.

He says the trial results will be evaluated to work out whether brokers can offer benefits to the bank.

But Bolton says borrowers aren’t necessarily missing out by using brokers who don’t deal with the two banks. He says a broker is more able to organise a high loan-to-value ratio loan backed up by a parental guarantee, making it a lot cheaper for the borrower, who is then able to avoid costly low equity fees.