Brokers could miss opportunities by not fully exploring how certain loan features can benefit specific customers, says Liberty’s David Smith
Borrowing capacity and housing affordability continue to be key challenges for Australians looking for paths into the property market.
While more borrowers are realising there are alternative options to requiring a 20% deposit to buy a home, there are still misconceptions around some lending features that could be ideal for certain market segments.
Misconceptions around the suitability of specific loan features can arise among both customers and brokers, particularly when it comes to features that could be game changers for some people.
Broker education is critical. The more information brokers have on loan features and what could work for different individuals, the more customers they can help while also facilitating business growth. Customers could find opportunities they might not have been aware of, while broker businesses expand the range of borrowers they’re serving.
Let’s explore some of these misunderstood lending features and what they could offer.
Flexibility with 40-year loan terms
Discussions around 40-year loan terms have increased in the market lately, but there is still some apprehension around extending terms past the typical 30 years. However, for some customers, a 40-year term could be a smart solution for their unique circumstances.
Firstly, longer terms and lower repayments could allow homebuyers to increase their borrowing power and avoid missing out on their dream property. This could be an ideal option for customers who require more borrowing capacity to get into the market.
For other borrowers, the focus might not be on paying down their mortgage as quickly as possible but rather on managing cash flow.
Forty-year loan terms could be suitable for borrowers who might be able to afford the requirements of a 30-year loan term but prefer to use their money for other investments.
The key for brokers is to take the time to holistically assess the needs of each customer and find options that align with their goals. Then, if a 40-year term fits their requirements, make sure they are well informed about repayments and other considerations.
Increased loan limits supporting property journeys
The idea of larger loans may feel less comfortable for some borrowers and brokers, particularly when higher LVRs are involved. However, this could be an ideal feature for select people at certain times in their lives. For example, one property journey could involve buying an ‘entry-level’ home to get a foot in the door. The next step could be upgrading to a larger property or a different location before finally buying the dream home down the track.
With each property purchase comes additional costs. From stamp duty to multiple moving expenses, these can amount to a significant extra sum. Higher loan limits could allow borrowers to secure their ideal property with their first purchase, which might be more suitable for some people in the long run.
Brokers who understand the full picture can help customers make informed choices that support their property journey, not just their first purchase. Larger loan sizes can also open up a whole new group of customers that brokers could be missing.
Custom solutions are not always complex
One of the biggest myths in mortgage broking is that custom loans are too hard and not worth the effort. If a broker is educated on the processes and has good support from BDMs and scenario teams, then ‘complex’ deals can actually be straightforward.
Take low-doc loans, for example. They’re a great option for self-employed borrowers, but the process is different due to alternative income verification. Brokers only need to reach out to their BDM and chat through the steps to realise how simple they can be. By passing up custom loans because of perceived complexities, brokers could be missing out on large market segments.
Another example is self-employed borrowers with tax debt. If brokers work with a lender that allows borrowers to consolidate this debt into their home loan, it can save the customer a significant amount of money on interest.
With the right knowledge and lender support, these are the types of scenarios brokers can take on with confidence, allowing them to help more customers and expand their businesses.
David Smith is the chief distribution officer at non-bank lender Liberty.
