When it comes to getting a new home loan or refinancing a property, many high-income households face a choice of working with a personal banker through private banking or engaging a mortgage broker.
If you have a personal banker (also known as a private banker), your initial instinct may be to contact them regarding your needs. However, by exclusively relying on your bank, you could be missing out on other potentially advantageous home loan opportunities.
By approaching a mortgage broker for a home loan instead of your personal banker, you open the door to a wider selection of lenders. However, concerns about upsetting your personal banker, who might have become a friend, or being disloyal to your bank could make you reluctant.
To resolve this dilemma, it’s essential to set aside emotions and consider the rational benefits associated with each option.
Pros and cons of sticking with your personal banker for property finance
In New Zealand, a personal banker is a financial professional who provides personalised banking services and advice to individual clients. They serve as the primary point of contact for all your banking requirements.
Qualifying for a personal banker typically entails having a substantial amount of assets. These services are linked to ‘private banking’, a division within a bank dedicated to servicing its wealthiest clients. Qualification usually involves meeting minimum requirements for household income (e.g. $250,000+), cash assets available for investment (e.g. $1 million or $2 million), and other financial proof points.
Personal bankers manage a portfolio of clients, which can range from a few dozen to a few hundred. If you want to know the number of customers your personal banker serves, you can simply inquire. Their response will provide an indication of the time they can allocate to your needs.
Personal bankers are generalists, covering a wide range of banking services. They assist in selecting suitable bank accounts and provide recommendations for insurance products, investments and home loans. While they strive to offer a high level of customer service, it is reasonable to assume that the service quality improves with a higher net worth.
If you choose to have your personal banker handle your home loan needs – such as purchasing a new family home, holiday home, or investment property – here’s what you can expect:
- Familiarity: Working with someone you already know can provide a sense of comfort and reassurance. Personal bankers prioritise building relationships to better understand your needs, but it’s worth noting that their friendliness also serves to retain your business.
- History: Being part of the private banking division means that they’re already familiar with your financial worth and track record.
- Efficient problem solving: Should any issues or changes arise with your home loan, having a personal banker in-house could support a swift resolution.
- Favourable terms: Your personal banker may be able to leverage their relationship with the bank to secure more favourable interest rates or contribute to covering house-buying expenses, like lawyer fees. It’s widely acknowledged that banks’ advertised interest rates aren’t necessarily the lowest they can offer.
- Limited choice: Personal bankers can only provide home loans from one lender, namely your own bank. They lack access to loans offered by other banks and non-bank lenders.
- Bank meetings: You will likely need to meet your personal banker at the bank’s location rather than your preferred setting. Most personal bankers don’t offer mobile services due to time constraints.
- No help with paperwork: Certain paperwork, such as budget preparation and financial reporting, will be your responsibility. While your personal banker might offer some guidance, their time is divided among numerous clients.
- Frequent personnel changes: Personal bankers tend to change positions frequently, due to promotions within the bank or moving to a different lender. This can be frustrating, requiring you to establish new relationships repeatedly.
- Conservatism: Remember that personal bankers are employed by the bank to sell their products and services. This restriction may limit their ability to suggest alternative options if your needs fall outside the bank’s policies and products. This limitation is particularly relevant if you want to borrow up to your maximum capability, as different banks have varying stress testing rates and risk appetites. Sticking with a single bank for lending purposes could put a limit on your borrowing capacity, potentially leading to missed property opportunities.
- Collateral and lending limits: All lenders impose limits on the number of properties you can use as collateral or the amount of lending you can have with them. If you plan to increase your property portfolio, there will come a time when you must explore alternative borrowing options.
Pros and cons of switching to a mortgage broker for property finance
Mortgage brokers, also known as mortgage advisers, are financial experts specialising in property finance. They have extensive knowledge and expertise in facilitating loans for all types of property.
As the New Zealand home loan market evolves, the mortgage advice sector is experiencing significant growth. Presently, it’s estimated that approximately 66% of all New Zealand home loans are handled by brokers. In Australia, this figure is even higher, indicating a likely continued rise in the proportion of home loans managed by brokers in New Zealand.
With this notable shift in consumer behaviour, you may be considering bypassing your private bank connections and opting for a mortgage adviser to secure the best deal. Below are the benefits and drawbacks of choosing a broker over your personal banker:
- Early involvement in the planning and preparation stage: You can engage with a mortgage adviser at the very beginning of the property buying process. Whether you want to discuss ideas or devise a strategy for property investment, your adviser can serve as a valuable sounding board.
- Access to a wide range of loans and lenders: A mortgage adviser collaborates with various lenders, including non-bank lenders. If you’re seeking the most competitive deal or a less common type of loan, working with an adviser can provide you with a shortcut to relevant lenders.
- Assistance with paperwork: Obtaining a mortgage often involves time-consuming paperwork and communication. By utilising a mortgage broker’s services, you can expect practical assistance that saves you precious time and reduces stress. They do a lot of the legwork on your behalf.
- Flexibility beyond traditional options: If your background or aspirations present challenges for securing a standard bank home loan, a mortgage broker can help you find lenders who are more flexible and understanding of your circumstances.
- Representation to lenders on your behalf: While it’s possible to replicate the research that brokers do to stay on top of their game, thoroughly exploring every relevant home loan possibility in the New Zealand market demands a significant amount of time and effort. Considering the value of your time, a broker’s existing knowledge and ability to work on your behalf become immensely valuable.
- Ongoing support for loan reviews and refinancing: Similar to building a relationship with a personal banker, you can establish a partnership with a mortgage adviser. If you frequently engage in property transactions, your adviser can become an essential member of your acquisitions team.
- Advocacy for your best interests: A mortgage broker prioritises your best interests. They adhere to the Code of Professional Conduct for Financial Advice Services, which mandates adherence to high standards of ethical behaviour, conduct and client care. The code also reuires brokers to meet exacting competency standards, including ongoing professional development requirements, so that they can provide sound advice to their clients.
- Potential impact on your private banking relationship: When you veer away from your bank for borrowing, your status as a private banking customer may be affected. If you value the prestige associated with private banking, it’s advisable to review the eligibility criteria before transitioning to a mortgage adviser.
- Varying expertise among brokers: Similar to any profession, mortgage brokers differ in skill and competence. To help you find a reputable brokers, we have assembled a team of mortgage advisers who are among the best in New Zealand. Make contact with one of our mortgage advisers.
Deciding whether to work with your personal banker or a mortgage broker should be a rational decision. Facts need to come before feelings. If the best way forward isn’t leaping out at you, it’s possible to explore both avenues simultaneously and ultimately select the option that presents the strongest case.