Why are so few Kiwis using Mortgage Brokers compared with the UK and Australia?
Mortgage rates and rising mortgage repayments are a big part of everyday conversation at the moment, but we are here to help you navigate the process of refinancing or first time property buying with our useful guides, including this one, on weighing the Pros and Cons of a Broker's expertise.
The mortgage broking market is still growing in New Zealand. Traditionally, home loans have been dominated by banks, with most borrowers going directly to their branch for a mortgage. The advice industry has only risen to prominence over the past two decades, as lenders began to accept third parties in the home loan process including some Non-Bank lenders.
The advice industry is growing, but loans placed by brokers still represent less than 50 per cent of the market, according to industry estimates.
In contrast, Australian mortgage brokers took a 70% per cent market share in a May 2022 survey, according to trade body the Mortgage and Finance Association of Australia.
In the UK, brokers accounted for close to 90 per cent of the home loan market in 2022 (Info from Iress’ 10th annual Mortgage Efficiency Survey in UK). So what is the Kiwi reluctance? Well hopefully we can help alleviate some concerns and give you the Pros and Cons of using a Mortgage Broker to help with your home loan needs. Using a mortgage broker or going directly to a bank both have their pros and cons. Here are some advantages and disadvantages of each option in the context of New Zealand:
Mortgage Broker:
Pros:
Access to multiple lenders: Mortgage brokers have access to a wide range of lenders and financial institutions, which gives you a greater choice of mortgage products and interest rates. They can help you compare options from various banks and non-bank lenders to find the most suitable deal for your circumstances.
Expert advice and guidance: Mortgage brokers are knowledgeable about the mortgage industry and can provide guidance on the best loan options based on your financial situation and goals. They can help you navigate the complex mortgage process, explain the different loan terms, and assist with paperwork and applications.
Save time and effort: Brokers handle the legwork of researching and comparing mortgage options, which can save you time and effort. They can help streamline the application process, gather necessary documentation, and negotiate with lenders on your behalf.
Potentially better negotiation power: Experienced mortgage brokers may have established relationships with lenders and can use their expertise to negotiate better terms, rates, or fees on your behalf. This can potentially result in cost savings over the life of your mortgage. There could even be products that are not available by going direct to a bank - like this 'secret rate' detailed in a Stuff article earlier this year.
Cons:
Fees and commissions: Some mortgage brokers charge fees for their services. While these fees are typically paid by the lender upon successful loan placement, it's important to clarify the fee structure and understand any costs involved before proceeding.
Limited lender selection: While mortgage brokers have access to multiple lenders, their network may not encompass all available options in the market. There may be some lenders or products that are not included in their offerings, limiting your choice to a certain extent.
Potential bias or conflicts of interest: Mortgage brokers earn commissions from lenders for successful loan placements. This arrangement may introduce a potential conflict of interest, as brokers could prioritize lenders offering higher commissions over other suitable options. However, reputable brokers are required to disclose these relationships and act in the best interests of their clients.
Direct to Bank:
Pros:
Familiarity and convenience: If you have an existing relationship with a bank or prefer to deal directly with a specific financial institution, going to a bank can be convenient. You may feel more comfortable discussing your financial matters with a bank representative you are familiar with.
Potential cost savings: Banks may offer exclusive mortgage deals or preferential interest rates for their existing customers, which could result in cost savings over the life of the loan.
Direct access to bank services: Going directly to a bank can provide you with access to a range of financial services beyond just a mortgage. This can include savings accounts, credit cards, and other banking products.
Cons:
Limited options: Banks offer their own mortgage products, which means you may have a limited selection to choose from. You might miss out on potentially better deals or products offered by other lenders in the market.
Limited expertise and advice: Bank representatives are typically focused on promoting their own products, which may limit the depth of advice and guidance they provide. Their expertise may be specific to their own offerings, potentially overlooking other suitable options in the market.
Potential bias: Bank representatives may have incentives to steer you towards their own mortgage products, even if there are better alternatives available elsewhere.
It's important to carefully evaluate your options and consider your priorities, preferences, and individual circumstances when deciding whether to use a mortgage broker or go directly to a bank. Consulting with both professionals and conducting your own research can help you make an informed decision that aligns with your financial goals.
Here at Money Compare we have partnered with some of the country's leading mortgage brokers and we detail all the major rates from the vast majority of home loan lenders. You can compare rates of home loans here or request a call from an advisor here.
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