Despite the economic challenges we’ve seen in the wake of the COVID-19 pandemic, there’s still demand for finance in the market, from residential lending to large commercial transactions. There are key things, however, that brokers need to ensure their clients are aware of throughout the financing process.
Key considerations for mortgage lending
Australian banks have been inundated with applications since the start of the pandemic. Part of this activity has been driven by the promise of cashback offers for refinancing and accessing record low rates. As a result, the turnaround time on processing applications has increased, with applications taking weeks, sometimes months to process. When the deal is approved and refinancing is completed, some clients can’t access the discounts that drew them to a particular bank in the first place.
Maintaining public faith is critical for the banks, especially now and some of these offers are dangerously close to being doorbuster specials. This presents a quandary for the banks. How are they going to look after customers whose application has been in the processing queue for weeks?
For clients refinancing to take advantage of the bank’s current offers and low interest rates, brokers need to help their clients weigh up whether it’s worth waiting for an application to be processed or if other options should be explored. This is where it’s particularly important to help your clients assess all options and calculate the cost of processing delays.
Applications need to be close to perfect
Applications are currently getting rejected for simple administrative mistakes due to increased demand on lending teams. Of course, this is frustrating for brokers and their clients, but it highlights the need for brokers to emphasise how important it is to work with an expert who will give them the best chance of success upon loan submission. For your current clients looking to fix rates, having the ability to auto-fill forms from our systems saves everyone time, and there’s a higher probability that the application will be right the first time.
Help clients weigh up different lenders
Administrative considerations aside, clients need to think about their priorities in a lender and where they’re willing to be flexible. For example, some banks still require face-to-face appointments to set up accounts. Income verification is also more intense than ever before. While income verification for PAYG salaries may be more straightforward, people with other types of income such as bonuses may face more rigorous income verification. As a broker, you can help your clients explore different funders and make sure their application is strong the first time.
To fix or not to fix?
A large influx of applications has been for refinancing to a fixed-rate home loan to take advantage of the historically low interest rates. The gap between variable rates and fixed rates has widened with rates up to 0.7% cheaper on fixed-rate home loans. Moving to a fixed rate is particularly beneficial for clients paying higher rates due to factors such as a higher loan-to-value ratio. For brokers, these clients should be a priority, and it can provide a helpful starting point for checking in with all your clients.
Check in with your clients
Brokers should typically contact their clients at least once or twice per year. If you’ve been lax in checking in with your clients, now is the time to contact them. And if a client isn’t getting the best rate, work with them to explore other options with their current bank and benchmark against the market. While it can seem daunting for clients to refinance, especially in uncertain times, it’s important to communicate that having a broker prepare an application could deliver years of benefits. Remember, a client who gets ongoing support from their broker can be a quality referral channel too.
For clients who can’t change their home loan right now, think about how you can help these clients. Can you look at refinancing as soon as their income situation changes? Or, could you help them to think about how their long-term financial goals have changed? These clients may not be immediate business prospects but demonstrating care now will mean you’re top of mind when their financial situation changes.
What’s the appetite for commercial transactions?
The number one question I’ve been getting since the start of the pandemic is, ‘Are banks still lending to commercial businesses?’ The answer is yes, but there’s a strong preference for recession-proof industries such as transport and health. On the other hand, lenders are currently apprehensive about financing for what I call ‘The four Rs’ – restaurants, retail, racing and recreation. It’s still too early to say how these industries will fare, particularly after JobKeeper ends in September but they were out of favour before this in any case.
Businesses that have used JobKeeper to maintain their workforce will need to consider how their finances will be impacted later in the year. Now is the time to be talking to your commercial clients to help them establish a strong plan before JobKeeper ends. Further, it will help businesses prepare for potential scenarios later this year, whether that’s a strong boom-like recovery or a more subdued end to the year.
Looking ahead to a post-COVID-19 world
With a lot of Australia’s wealth stored in property, house prices often drive consumer sentiment. While Australia is now in a recession, the amount of lending activity and demand in the residential and commercial markets demonstrates that consumer sentiment is still strong. That, however, doesn’t mean it’s time for people and businesses to get complacent. Make sure you’re proactive with your clients and help them sure-up their financing now.