In the contest for your mortgage, how do the Big Four banks and smaller lenders compete? Who should you turn to for the best deal?
Research from a 2014 survey of 1,306 Aussie buyers shows 50% of home buyers will go straight to their bank for a home loan. And in some cases, they’re prepared to pay as much as $1107.35 more per year for a mortgage with their bank. So why would buyers choose a bank mortgage over a better deal from another lender? We size up the pros and cons of lenders, big and small, to help you find a great deal for your mortgage.
Does size matter?
According to Aussie General Manager for Strategy and Product, David Smith, “All lenders have a strong appetite for lending regardless of their size. But who they’re lending to and on what terms keeps changing over time. Their priorities vary depending on a whole range of circumstances, from their current level of investor lending to increases in their cost of funds.”
There’s no simple rule of thumb for borrowers to follow when it comes to choosing a lender who is more likely to negotiate on interest rates. But there are some other benefits you can generally expect from big and small lenders.
Big Four – Package perks
One way in which Big Four lenders often edge out their smaller counterparts is by offering good value from their mortgage packages. And if you’re borrowing a fairly large sum, the annual package fees can seem pretty modest when you’re getting a good variable rate discount, credit card and lots of other loan features.
Big Four banks also tend to offer a wider range of products, which can appeal if you need more than one type of home loan, or want a lender you can stick with as your mortgage needs change.
Small lender – Service smarts
So how can smaller lenders get the upper hand in the mortgage stakes? It’s usually their service and speed that make a difference to customers. Because they’re handling fewer loans, there’s a much better chance your application will be seen by a pair of human eyes at first contact. If they need more information about you and your finances, the feedback loop will be shorter, so you’ve got a better chance of getting the right result quickly.
Lending policies for smaller lenders can sometimes be more lenient because of their regional knowledge.
“They usually understand the local property market better,” says Smith. “Say you’re looking for finance for a semi-rural block of land, a major lender may only approve your loan if you commit to build within six months of settlement. A small lender who knows the area will usually take a more flexible approach with conditions like these.”
Number one interest
If you’re looking for a better mortgage deal, interest rates are often the bottom line for choosing one lender over another. But before you apply with a lender advertising a temptingly low rate, you should be aware of any issues that could rule you out as a borrower.
“Because of the particular circumstances of your application you might get knocked back and give up on the idea of getting a better deal,” says Smith. “And that’s where a mortgage broker can really help you navigate current offerings from all the lenders on their panel. A good broker knows exactly where lenders are at with their criteria for different kinds of properties and borrowers. So they can find you a competitive rate with a lender that’s going to look favourably on your application.”
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Do you have experience with bigger or smaller financial institutions for your mortgage? Share your thoughts and ideas in the comments below.