How To Select a Lender Part 1: Brands
When you think home loans, your first thought is probably to call the bank, right? The majority of the population still banks with the big 4 - Westpac, ANZ, NAB and CommBank, and rightfully so. These banks are titans of the industry, and some have been in the game since the early 20th century. However, the very size of these banks makes them both safe places for storing your money, and not necessarily the best place to look for lending.
What are the pros and cons of using a major bank?
The major banks have a few differentiating factors:
Pros:
Trust - the major banks all have a AAA credit rating, which is a formal international system to determine how safe a bank is to store money. Only 12 countries across the world have AAA financial institutions, which puts the majors in elite company.
Branches - The majors are akin to supermarkets here, in that they are absolutely everywhere. Having in-person branch service isn’t unique to the major banks, but the ability to find a branch almost everywhere you look, even outside of metro areas, is perhaps more exclusive to the majors.
Functionality - the online offerings of the majors, whilst not necessarily the prettiest by today’s standards, are chock-full of deep functionality, such as links to rewards programs that might not be present with a minor lender.
Cons:
Size - they often have total loan books in excess of a trillion dollars. This means that even a million-dollar home loan will be only 0.0001% of the banks’ total lending. Put simply, you’re going to be easily replaceable.
Branches - It’s great that major banks have so many branches, but the very fact of having these branches means that staff need to run them, and someone has to pay for those staff. The unfortunate result is that customers will end up indirectly paying a premium to support those staff members, even if they don’t use their services.
These factors are part of the ways in which majors build their brand; the trust that consumers place in them and the reliability of the service are the reasons customers are often happy to pay a premium to stick with a major bank.
What are the pros and cons of using a minor bank?
The minor banks have their own strengths and weaknesses.
Pros:
Size - The loan book of a minor lender might only be a billion dollars altogether. For context, a million-dollar home loan is still likely to be 0.1% of their total business -> much less easy to replace, so they will have to work harder to retain you.
Efficiency - The minors might not have such a strong credit rating, but they often compete on factors such as online user-friendliness in their offerings. Often, their apps are simple, clean and better designed than the majors, as they have fewer internal systems that the applications need to interact with. One can see minors as the nimbler and more flexible, if less robust cousin of the majors.
Client Experience - the fact is, minors know that they are smaller fish, so they have to work harder to please their customers. Experienced mortgage brokers know this, and if a major can’t help you get your home loan sorted urgently, it might be time to let a broker guide you through the process of finding the right minor for you - their turnaround times are often much quicker because they have the advantage of a less complicated and bloated internal system that they need to negotiate.
Cons:
Less well-known - if someone says Westpac or ANZ, you probably can pull up a mental image of the rough design or at least color associated with the bank. This imagery generates a sense of familiarity, and therefore trust. It’s harder to develop this sense with a bank like Macquarie, which is maybe less commonly used, and has fewer customers.
What factors are applicable to both banks?
Government Guarantee - for all the major banks, and many of the minors, it’s a lesser-known but useful fact that the government will guarantee a decent portion of the money that you keep with the bank, in the event that the financial institution goes under. The majors have a guarantee of $250k per person, but this number can vary between institutions.
Rates and products - Stemming again from the fact that minors are the small fry, they are often willing to cut into their profit margins to provide rates and products that the majors won’t always be able to match. However, by being smaller, they can also handle less risk, which means that some smaller lenders might take the opposite approach. Navigating these lenders and finding accurate comparisons to the majors to better inform clients is part of the value of a broker.
Ultimately, the decision is yours as to whether you use a major or minor bank, for both your banking needs and your lending needs. But either way, a quality mortgage broker can be a feather in your cap, leveraging their knowledge and experience to make sure that your needs are met in the smoothest and most efficient way possible, that is tailored to your situation.
Information Disclaimer:
Any advice provided is general and does not take into account individual objectives, financial situation and needs. All individuals should consider whether the advice is suitable for them and their personal circumstances.
