Two sides to the broker's coin

BNZ and Kiwibank only deal directly with customers. Photo / Kenny Rodger

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.

Financial commentator Bernard Hickey agrees brokers can be a help for people who aren't good at researching the market, approaching the bank and understanding the issues.

But he says there is not much more a broker could do than people could do themselves if they were prepared to put some time into it.

"You can get as good a deal by doing it yourself, checking interest rates and asking questions."

Borrowers should not be afraid to ask banks for a better deal, he says, especially if you're a good customer who's been with the bank a long time.

He says borrowers need to remember there is more involved in a home loan than just the interest rate: they should take into account how flexible the bank is, break fees and what kind of service they can expect to get.

He says while buyers aren't paying for the broker's service, they do earn a commission - and could be inclined to direct customers to the bank which gives them the most.

Generally brokers get about 1 per cent, and then a trailing commission.

"There's a bit of fat there - why don't you say to the bank, 'why don't you give me that 1 per cent, or we'll split it?"

Hickey thinks there will always be a market for brokers "because some people are not willing to make the decision on their own".

Property lawyer Tim Jones, of Glaister Ennor, says a good reason to use a broker is they can apply to various lenders on behalf of a prospective borrower without leaving a trail on the borrower's credit record if the application is declined.

If the borrower approaches a bank directly but is declined, that is entered on their credit report and can be an influence on other loan applications.

Hot deal

Melissa Khoo got a better deal on her mortgage than what her mortgage broker originally negotiated with the National Bank.

Khoo took the broker's offer to the BNZ, which agreed to better it.

Then, she went back to her broker, who in turn sharpened up the terms of the deal he was offering.

Shrewdly, the young property investor once more went to the BNZ and secured a loan offer on more favourable terms.

Khoo has two investment properties at the age of 24, and is following in the footsteps of her property investor sister Catheryn.

"She's my mentor."