Getting help early is important, says broker
The ability to service a loan remains a sticking point for existing and new mortgage borrowers despite the official cash rate remaining unchanged, a mortgage broker says.
Jacob Thorne (pictured above), finance broker at Port Finance Group, said that capacity to repay remained a concern for homeowners looking to refinance their loans, while those looking to enter the property market had reduced borrowing capacity.
“Understanding the types of things that can cause roadblocks, even before a deal is submitted, is really crucial,” Thorne said.
At its September meeting, the Reserve Bank of Australia left the official cash rate on hold at 4.10% for the third consecutive month. But with four percentage points of increases since May 2022, higher interest rates are still working their way through the system, impacting an estimated 800,000 borrowers due to roll off lower fixed rate loans this year.
Thorne, who has worked in the financial services industry, including retail banking for close to seven years, said that borrowers’ capacity to repay loans had been “pushed and challenged,” particularly as wages growth had lagged behind inflation.
Having become a self-employed mortgage broker early this year, focusing primarily on residential lending, Thorne said that squeezed serviceability put increased onus on mortgage brokers to do their research and find solutions for their clients.
“Gone are the days where brokers could submit the greater majority of their deals to three or four lenders,” Thorne said. “You do have to look a little bit wider onto the panel in order to get a deal to service.”
Drawing on his experience working for a second-tier lender, Thorne said that many borrowers were simply unaware of the myriad of options available.
Mortgage brokers, who currently write 67.2% of all new residential home loans in Australia (MFAA June 2023 figures), are well-placed to understand what is required to get an application approved and match clients with the right lender, he said
“For borrowers, talking to a broker is crucial to getting an understanding of their particular circumstances and how best to navigate that towards getting a loan,” Thorne said.
Brokers able to identify roadblocks to approval
Given the rapid monetary policy tightening over the current cycle, Thorne said that straightforward deals were increasingly scarce.
An effective broker will ask the right questions upfront, so that by the time the application goes in, any potential hurdles are already addressed, he said.
“Understanding the types of things that can cause roadblocks, even before a deal is submitted, is really crucial,” he said.
Working with a broker throughout the homebuying process provides homebuyers with potentially dozens of lending options, and someone to share the journey with, he said.
“I believe there is a huge disconnect between what the average customer understands and how the bank actually works,” Thorne said.
Having experience in banking helps, Thorne said, as it provided an understanding of what was required to put an application together so that it had the best chance of being approved.
Additionally, brokers are able to draw on their networks, including credit officers, business development managers and others, for support and advice. The ability to lean on other industry professionals generates a positive result for the customer, he said.
For Thorne, property conversations with friends and family convinced him to make the switch from banking to broking, and he said he had not looked back.
Over the last 12 months, Thorne completed his Diploma of Finance and Mortgage Broking before becoming self-employed, working with a team of brokers at Port Finance Group.
“We (brokers) continue to push for the customer’s best interests and make sure they’ve got a competitive loan in the market,” Thorne said.
“Being able to guide clients in the right direction if there’s a conversation that needs to be had (e.g., with an accountant, solicitor or a buyer’s agent), all of those things are what a really good broker can do.”
For homebuyers, being able to strike at the right time is key, and having their finances sorted is the first step in that process, he said.
Do you have any concerns about borrower serviceability? Share your thoughts in the comments section below.
