There is an increasing number of potential home buyers seeking finance from an independent mortgage broker over their traditional counterparts, the big banks. The main reason for this? Cost. Just as almost every other known industry is affected by developments in technology, the banking industry is no exception. This is good news for those seeking a loan as customers choose to leave the big banks with which they have been customers since childhood and choose smaller providers who have mastered the art of digital banking and customer service.
But independent mortgage brokers aren’t always the best option. There are a number of pros and cons to finding a loan through these two avenues, which continues to change as the industry adapts to consumer habits and expectations as well as developments in technology.
For instance, Australia’s big four (Commonwealth Bank, ANZ, Westpac and NAB) have for a long time seen the writing on the wall as far as their bricks-and-mortars branches are concerned, and have been slowly but continuously shutting down many branches and consolidating their services and costs to reduce their overheads. As economies become increasingly digital (cashless), the below pros and cons will change to reflect the inevitable way in which larger banks will reduce their overheads to provide customers with lower fees and rates in line with what their competitors already offer.
To find out which avenue you should walk down when trying to secure financing, look at where you are financially (what sort of deposit can you put down? If only 5 per cent, you are either not ready to enter into a mortgage or if you are choosing to only put 5 per cent down, then an independent mortgage broker may be able to help), where you are in your life (are you a first home buyer or a retiree? A big bank may be able to offer a retiree a greater number of options, such as a reverse mortgage), and what you value in a loan (flexibility vs. lower rates).
Studies done by Roy Morgan in 2017 showed that customers belonging to the top 6 independent mortgage brokers and banks outside of the big four ranked their satisfaction with their home loans higher than customers who were with the big four. Bendigo Bank ranked the highest, with a score of 92.1 per cent (compared with Commonwealth Banks ranking of 79.6 per cent). Despite bad press for the big four, customer satisfaction with banks in general remains at a two decade high, and with competition as fierce as it is, it is unlikely that either independent mortgage brokers or big lenders are going to replace customer satisfaction as a key driver of their business strategy.
Independent mortgage brokers
|Small lenders often benefit from lower overheads (no bricks and mortar costs, less employees) and can pass this on in the form of lower rates and fees.||Can often offer loans to those with a smaller deposit (5%). This can be a pro or a con, depending on a borrower's understanding of their financial position and ability to repay the loan.|
|Small lenders often have fewer employees and so less funnels for you to pass through when securing finance and possibly more negotiating power for you.||Small lenders can suffer from slower approval times for loans, due to smaller resources on which to draw from.|
|There is potential for a more tailored customer experience, suiting your financial situation.||Small lenders, while flexible, may not be able to offer as many products as a large bank.|
|Smaller marketing budgets mean these companies often have to find new ways to attract customers, which can result in greater customer service and service/product offerings.||Less chance of a bricks-and-mortar branch in which you can discuss your finances with an adviser.|
|Big lenders often have more staff and services to help you with your needs. This potentially means less time waiting on the phone.||Larger overheads (greater marketing spends, staff costs, bricks-and-mortar branches) mean larger fees and higher rates for you.|
|Large lenders are susceptible to public perception and tighter regulation, which can either be a pro or a con but does potentially mean you are less likely to enter into a risky loan arrangement.||Large lenders may give less attention to your personal circumstances, and be constrained by their systems and bureaucracies and less understanding. They don't need to provide the same level of customer care as they benefit from their marketing and traditional position in society.|
|A large resource base means big lenders can often approve your loan faster than smaller lenders.||Large lenders often have less flexibility in tailoring loans.|
|Big lenders have a greater pool of resources on which to draw from, and large marketing and product departments so that they often offer a greater variety of options to lenders, such as offset accounts.||You are more likely to come up against tougher qualification measures by a big bank. This can be harder for first home buyers.|