Almost anybody could become a mortgage broker up until 2008, and there were a number of cowboys in the industry that caused a lot of problems for their clients. However in 2008 the government changed the regulations, and forced mortgage brokers to become Authorised Financial Advisers for AFAs.
This sent shockwaves through the industry, as the new regulations meant that mortgage brokers had to pass exams, had to get authorisation to practice, had to join and register with a dispute resolution scheme (DRS) and had to be registered on the Financial Services Providers register or FSPR.
While there are no specific secondary education requirements to become a mortgage broker, they need to study and pass the National Certificate in Financial Services – Financial Advice (Level 5). This is not an easy certificate to attain, as the study requirements are intensive, and require a good grounding in maths and personal organisation and time management.
As a result most of the Cowboys in the industry left, and only those capable of study and with the right attitude to the work remained.
Mortgage brokers are critical to the mortgage industry, as at least 40% I all housing mortgages are organised by a mortgage broker. In general clients use mortgage brokers because they are they do not know how to get a good mortgage all they do not fully understand the home buying process, or they are finding it difficult to get a good deal with the banks. Mortgage brokers will do a number of tasks for their clients, one such task is assessing whether a client is eligible to borrow money for a house or property. Many clients also need the Mortgage Options and bank offers to be explained to them, and they will also need advice on the structure of mortgages and loans. Mortgage brokers need to be able to calculate the mortgage repayments and be able to explain the home buying process to clients, and during the process they will be liaising with the bank on the client’s behalf. They will probably also have to liaise with other parties such as lawyers, valuers and real estate agents on the client’s behalf. Also they often have to complete the bank loan application forms for clients, organise building reports for the bank and even home valuations. They may also often organise insurance.
Clients will come to a mortgage broker generally with one or two main questions. They may be wanting to to change their home, or they may just be wanting a better deal from their bank.
First home buyers may be having a problem getting a mortgage and will need a mortgage broker to help them with this. Other homeowners may simply be wanting to consolidate their debt, perhaps to buy a vehicle for example.
Established residential property investors and new residential property investors will definitely need a mortgage broker, and an expert one at that, as would anyone wanting to buy a commercial building or wanting to develop a residential or commercial property. Many people starting a new business also need a mortgage broker for the initiative capital investment. Some may in fact have other needs such as insurance and retirement planning, or they may simply just want advice.
Many clients are simply hoping for a better deal for their mortgage then they are currently getting from their back, and a good mortgage broker can really shine in the situation. They not only understand the products that the banks are offering and the implications of each product for their client in the short and long term, they also know where they can negotiate with the banks, and can often score a much better deal then an individual client would score themselves from the same bank.
One downside to the mortgage broking industry is that the business very definitely has its peaks and troughs. When business is booming and property prices are rising then mortgage brokers are flat out busy, but in a property downturn such as appears to be happening in mid 20017 then there is far less business for mortgage brokers and far more competition for business.
One very popular type of client is the first home buyer, who has possibly already been turn down for a mortgage from an established Bank. The job of the mortgage broker and this case is to accurately determine what the client is allowed to borrow, and what deposit the client has, and then to locate a mortgage product that is fit for purpose. Good mortgage brokers will have access to another of sources for a mortgage, and are in a much better position than the client to find out what is the best deal available on the market. Today for example for a client with the 20% deposit then the difference between the best and worst interest rates is 0.7%, which for a mortgage of $350,000 over 25 years amounts to $142 per month difference in payments.
If a client is unable to raise a 20 deposit, then they probably have to be prepared to pay a higher interest rate unless they are lucky and managed to score a Welcome Home loan. The problem is that the reserve bank is already nudging the banks to tighten up their lending criteria, and most banks are now not lending to clients without a full 20% deposit.
One interesting aspect of the mortgage broking sector is that a large proportion of if not virtually all the work can be done remotely via the Internet, although many clients may need at least one face to face visit in order to establish a trusted working relationship with the mortgage broker. However the face-to-face does is not critical in many situations, and what is more important is that the mortgage broker is able to solve the clients mortgage problem. In 2017 many citizens are quite happy to carry out business over the Internet, and this has therefore opened up the New Zealand Internet market to anyone operating from anywhere in New Zealand as long as they have a good Internet connection.
First time buyers are more often than not millennials and are already very Internet savvy, as is most of the working population. This can mean for some mortgage brokers that they need to fear competition from brokers elsewhere in New Zealand, but this can also mean for any mortgage broker that their target market is anywhere in New Zealand. This allows some mortgage brokers to specialise and the services they offer. There is strong competition in the sector for property investors as clients, as property investors generally create a lot of repeat business, plus they are in contact with other property investors and so are good for making referrals. The mortgage broker service in this market needs to understand the second tier finance market and perhaps even the 3rd to your market as well as the major banks and their mortgage products. Their primary task is simply to find finance for a property deal, and in many cases the client only wants finance and is not too concerned about major variations in interest rate. This is particularly so if a client intends to sell the property shortly after developing it.
Mortgage brokers finding finance for commercial buildings and properties need to have quite a different skill set to those dealing in the residential property market. The value of any commercial property and hence the value of any loan servicing at property is largely dependent on the rent that can be charged for that property and of course the occupancy rate. Financing for these projects can be very technical, and may require sophisticated negotiation between purchaser, vendor, bank and lawyers.
A mortgage broker may often be required to pass on or handout unpleasant advice, particularly where the client has unrealistic expectations about the amount they can borrow and/or the size of the loan they can service. Mortgage brokers often need good diplomatic skills and need a good ability to explain things. Often clients are hoping to cash in on the high value of their own property, and may hope to borrow a lot of money to purchase a new car or take a World Cruise for example, without fully understanding how they are going to service the debt. Many clients often ignore the fact that they may lose their job or have some other bad luck befall them, and the last thing anyone wants is to be forced to sell their property urgently to fund debt. There are countless vultures waiting around in the market for good deals that come from a desperate vendor.
While the modern mortgage broker can operate very efficiently from his office and can service clients from one end of the country to the other, there are a large number of clients who actually do need a personal visit from the mortgage broker. Mortgage brokers need to be prepared to work in the evenings has most clients are only really free in the evenings, and the most important task for the mortgage broker is to first of all gain the clients trust, and then to ensure that the client fully understands all of the issues and options in front of them. For another of clients the face-to-face method is the only way they are going to gain this trust and have confidence that they understand exactly what the mortgage broker is advising them.