Ep 20. Banks vs Brokers
Banks vs. Brokers. In this episode, Michelle chats with mortgage broker Micahel Chiel from Stonehouse Group who shares his tips for dealing with banks during the buying process.
Here’s what you’ll learn from today’s episode:
Why having a broker can help navigate the pre approval process
Should you stick with your bank when looking for finance?
Banks and their lending options
Which lender is right for your circumstances
Credit Scores, and what it means for your lending
Speakers in today’s episode:
Michelle May - Michelle May Buyers Agents
Michael Chiel - Stonehouse Group
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Please note that any views or opinions presented in this podcast are solely those of the speakers, and do not necessarily represent those of any business. These views and opinions are general in nature, and do not take account of your personal objectives, financial situation and needs. Please consider whether it applies in your circumstances and seek professional advice wherever appropriate.
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VIEW TRANSCRIPT
Michelle May: Hi, and welcome to the Buy Your Side podcast, the property podcast to help you buy better. My name is Michelle May and today I am talking with Michael Chiel from Stonehouse Group, once again, to talk about banks versus brokers. What are the differences? What do we need to watch out for? What other questions to ask? So here we go. Hi, Michael. Welcome back,
Michael Chiel: Hi Michelle, thanks for having me again.
Michelle May: Our last episode was such a hit. I thought I'd pick your brain a little bit more. And today I really want us to talk about the big banks versus brokers and what are the questions we need to be asking ourselves to get the best possible result for us looking to find a mortgage?
So obviously we get hammered with advertising as soon as you start looking on domain and real estate and you think, oh, I might potentially be in the market to buy something. You know, all of a sudden when you're on Facebook or another website, all of a sudden these pop-up ads come as if they're reading your brain. Right? All of those are from the big banks, you know, advertising lowest rates and things like that.
And so I have a couple of questions for you. The first one would be with all these different options nowadays with borrowing money left, right and centre. Why a bigger bank isn't always, you know, talking about the big four. Why is a bigger bank not always the better option?
Michael Chiel: Every bank has a different set of lender policies. They all have different risks that they're willing to accept. And so, as a result, every aspect of an application that you can possibly think of basically varies from bank to bank and lender to lender.
And so why that's important is because everyone's situation is so different and depending on what it is that you actually want, one bank might be more suitable for you than another. And so just because a bank is bigger, doesn't necessarily mean that they're going to be more accommodating. So as an example, if you have an existing property, the banks will assess that existing loan in a certain way.
And some banks will look at the actual loan and add a buffer onto it. Whereas some banks might actually just look at the actual repayments and add a slight buffer on top of that. So the actual repayments compared to an assessment rate might be very, very different. So borrowing capacity, for example, might be one area where the difference between a big bank and a small bank may vary significantly.
Michelle May: And it's interesting, isn't it? For example, we've got Commonwealth Bank and then you've got Bank West. Who's actually owned by Commonwealth Bank. Right?
Michael Chiel: Right.
Michelle May: But they could have very different rules and regulations as to how much they're prepared to lend you?
Michael Chiel: Yeah, absolutely. Absolutely. They do. So, yeah. That's one example. Exactly. They also will have different interest rates, even though they're basically the same bank. Every facet of an application can be looked at differently, you know, perhaps your bonus income or your living expenses, or
Michelle May: And it could also depend on what industry you work in. You know, so I was working with clients recently. One was the principal of the school. So they got there, they're borrowing through
Michael Chiel: Teachers Mutal?
Michelle May: Teachers Mutual. Yes. So they look at things differently if you, if you are part of that.
Michael Chiel: Yeah, absolutely. So there's, you know, specialists policies with, with some lenders, self-employed clients, you know, some, some lenders will look over two years. Others will look at one, basically, any, any aspect of an application will vary across the banks. And that's why it's important to have a mortgage broker because they have access to all those different banks. Whereas if you walk into CBA, I'm sure their staff are very friendly, but they're probably not going to say to you, oh, by the way, you know, if you walk a couple of doors down and speak to bank X, they're going to be able to lend you more or provide a better service or, you know, whatever it might be.
Michelle May: I use the analogy of going into the Volkswagen dealership. You know, you're walking in and obviously all they've got there is Polos and Passats et. They're not going to go and whisper in your ear and go, “Hey, pssst, you know, if you walk down the road and you go to Skoda, you're going to get the same car, but it's a third of the price.” They're only ever going to push whatever they've got available to them. So I guess that's what you can expect from your broker. You can get a view across the whole market, right? I mean, when I start talking to a broker how many different products, should he, or she be able to show you across then? What's, what's, what's a normal expectation?
Michael Chiel: Brokers, we'll all have access to call it 30 plus lenders so quite a lot of options. But in terms of what they present to a client, I feel like three or four is probably the most, you know, anyone can sort of just jump on a comparison website. If they want to have a look at a hundred options. But I think really it's the broker's role to put forward, you know, the best three or four to explain why and that, and that can include the client's existing bank. You know, it's not to say that the client shouldn't go to their existing bank.
Michelle May: If you're saying you've been with a certain bank for years, I've been a very loyal customer of Westpac for 20 years.They're going to give me a great deal. Is, is that, will they look after you better? Do you think?
Michael Chiel: The short answer is no,
Michelle May: Why am I not surprised?!
Michael Chiel: I think a lot of people do feel that and the amount of time we, we hear I'm loyal to my bank and these sorts of topics, but no, the application still needs to go through the exact same channel. They still need to assess whether you can afford it or not.
Michelle May: So there's no such thing as a because the preferential rate for people, who've been with a certain bank for over plus five, ten, twenty years?
Michael Chiel: Unfortunately not. So it's still the same, the same process, which is, you know, it's a bit unfair perhaps, but, you know, that's just the way that the banks have decided that they want to run the way that runs
Michelle May: It's that complacency, right? Is take advantage of the right word. Cause it's hard. It's hard to change bank accounts. It's hard to change your mortgage. It's it takes time and everybody's so busy and you're spread so thin over all these different things you have to do that is, or like it's like choosing, you know, health insurance. Oh my gosh. It's really hard. So people just go, okay, I'll just stick with whatever I have. And, and they'll look after me. But I imagine that as a broker, you can, you can bring a lot of value to, to that proposition and actually show them what the difference would be. Now when you are in the market for a property, and you're looking at getting a pre-approval, is it a good idea to apply across different banks and institutions for, for multiple applications? Or what, what are your thoughts on that?
Michael Chiel: Definitely. Definitely not. So firstly, with the pre-approval, one thing that's been to be mindful of, or to be aware of is that the approval is fully assessed. So what happens is a lot of banks, and this is understandable from a profit perspective, a lot of banks won't actually assess your application completely until you provide a contract of sale. If you apply for pre-approval, what will happen with a lot of lenders is that you put in the details. And if it takes certain metrics on submission, an automatic approval will be sent out, but that's worth as much as me writing on a piece of paper saying approved
Michelle May: ohhhhhh, really?
Michael Chiel: It really doesn't mean anything. You know, whether the brokers made a mistake to accidentally put an extra zero on someone's income or you know, whether the system hasn't picked up a certain policy that only someone from the bank would actually be aware of, but perhaps the computer system hasn't picked that up. And especially in Sydney, when it's so competitive and whether you're buying an auction or you're required to exchange with a 66w so you're exchanging unconditionally with a nonrefundable 10% deposit, that sort of stress that you don't need to not be sure whether the banks actually looked at your application or not. So, number one is making sure that the bank has fully assessed your application, but with the pre-approvals, because it's not property specific, it's just making sure that you can cover a particular scenario and that's what you to submit to the bank. So the scenario might be you're purchasing for a million dollars and the loan’s $800,000 and the bank will assess to say, yes, based on your affordability and the lender's policy, we're happy to issue you this loan, but they don't know what property you're purchasing.
So if you apply for two or three or four, pre-approvals, you're not more secure, you're not more protected. All you need is one to make sure that you’re covered. It doesn't mean that you're stuck with that bank. So one of the things that we do at Stonehouse is that we make sure that when a client has a pre-approval and then they exchange we'll always go back and reassess lending options.
So we don't want to say to someone, well, because lender A, B and C don't fully assess pre-approvals that we're no longer going to consider them as an option. So once the client exchanges we'll then reassess to see if it's still the best option. I mean, saying that we don't know if the property search for a client lasts a week or months in that time, the products might have changed. The rates might have changed. The client's deposit might have changed. There's so many variables at play, so we don't want to just pigeonhole a client into saying but you got a pre-approval with this bank you're stuck with them.
Michelle May: Yeah. That makes absolute sense. And for those who are listening, when you exchange contracts, that means that you are locked into the transaction. So you have signed the contract. The vendor has signed the contract. You have paid your five or 10 percent deposit. If you pull out of that transaction, you lose that deposit that is here in New South Wales. There may be different conditions wherever you are in the country, but the bank, remember the bank lends to you. And then they have to decide whether whatever money amount you've put on the contract, the property is actually worth that. Right? So it's great that they say, “look, Patricia, we're, we're happy to lend you a million dollars. You go and find yourself an apartment, put a million dollars on the contract.” They can still turn around and say, “ah, well, we think your lovely Patricia, but that apartment's only worth $800,000.” So that is something that can happen if you haven't done your research. So you can't just go out and spend your million dollars with gay abandon, you still have to do your research, right, Michael.
Michael Chiel: Exactly. And I think also one thing to keep in mind also with those multiple pre-approvals that we sometimes see before a client comes to us is that it can impact your credit score. Your credit score is essentially a number that the banks or the powers that be have come up with to work out very quickly if someone's going to be good at repaying debt, a good borrower, and so there's all these different aspects to work out if that's the case. So that could include items such as missed credit card or missed loan repayments.
It could include things like even just your time at employment or your address, so to show essentially stability. That's one aspect, another aspect is credit activity. And so on your credit file and this is something that I would encourage clients to, to have a look at just out of curiosity, if nothing else. And that can be accessed for free online credit savvy.com or equal facts there's a few different providers, but on your credit file, it doesn't actually show the outcome of a credit inquiry. So when you submit an application and as for a credit card, home loan, any, any debt, essentially, it will show up with the date, the institution that you applied for, the type of inquiries. So whether it was a mortgage or personal loan, whatever it might be and the amount, but it doesn't actually say whether you got approved or declined, why this comes into play with your credit score is that what the guys have worked out is that if you apply multiple times in a very short period of time, the reason is most likely because you got declined.
So they figure, well, if you got declined from lender A you probably applied to lender B a week later to try and find those solutions. And then at that didn't work, you apply for lender C and so that's something that can actually reduce your, your credit score. And depending on how many enquiries you have, some lenders actually have a number that says, if you've had a certain amount of credit enquiries in a set period of time we’ll actually automatically decline your application.
Michelle May: Wow. Okay. And that could be one day I want to start spending big. So I put in an application for a pre-approval and tomorrow I'm going to apply for a credit card. And then the day after that, I'm going to see if I can buy a car. Is that across all those things or is it specific applications that, you know, it's all in credit card inquiries or it's all car loans, it's all mortgage applications? Does that get weighted differently?
Michael Chiel: It doesn't, no. So any of those, they all count. A couple won't really make a difference, but definitely, if you're applying for five or six, in a six month period, then that's probably something to be very mindful of.
Michelle May: So it's also time-specific. So it looks at the same period of time. Okay. Well, that's very interesting. So there you go guys, if you are looking to get a mortgage, don't just go putting applications in here, there, and everywhere, because that's not necessarily a good thing. Thank you so much, Michael this has been really insightful. If people want to get in touch with you, how are they best to reach you?
Michael Chiel: Feel to give me a call? So my name is 0406607387. Check out my LinkedIn Michael Chiel, or send me an email, michaelchiel@stonehousegroup.com.au
Michelle May: Thanks, Michael. Thanks for coming in and talking to us about this subject. That's been really insightful. I've certainly learned a lot.
If you have any questions for me or for Michael, of course, you want to know about how to get a mortgage, how to buy, interest rates, anything like that. Do drop us a line at hello@buyyourside.com.au. We'd love to hear from you. Thanks for listening, until next time.