When unveiling the mechanics behind lender strategies, understanding margins is key – knowing the gap between what you pay and what they fund is vital.David Zammit I Executive Director I Lending Solutions I Sydney
After spending many years running a mortgage business for banks, I am extremely well-versed in how to ensure our clients here at PKF are achieving the best possible outcome when it comes to their mortgage.
To go behind the scenes and understand the inner workings of how lenders operate with mortgage pricing there are a few things to understand. Firstly, a key priority for the lenders is their “margin”. This margin is the difference between what the banks receive from you as the borrower and what they are paying out to those that are funding the mortgage, for example deposit holders.
For lenders, acquiring new clients is challenging, therefore lenders acquire clients at competitive low rates and low margins. Once the client has been acquired, rates may gradually increase. Most clients don’t have the time, understanding or energy to constantly harass the lender for a better deal or shift the mortgage to another lender that will provide a better deal.
This process is exacerbated the more that interest rates move, as it gives the lender more opportunities to increase their margin difference between what they acquire new clients on and what their existing clients are on. This group of existing clients is called “the back book”.
The back book generally pay between 1%-2% more than new clients coming into the lender. Unfortunately, the only way to combat this cycle of giving away more to the lender than you have to, requires:
Insight into what is happening within interest rate markets and how the lenders are responding to the market conditions.
Insight into what kind of clients a particular lender is looking to attract. Not all lenders want all kinds of clients and therefore understanding who wants YOU as a client is particularly important not just for achieving the most attractive rate, but also the different features that are available.
A monthly review of points 1) and 2) combined with a tenacity to push the lender to either offer the more attractive terms or take the business to a lender who will.
It is extremely difficult to manage the process of keeping on top of the best options. That is where we come in. We are passionate about empowering our clients through insights, expertise, and inspiration to finance their dreams and build their wealth.