The big issues to discuss with borrowers

by Jason Fallscheer20 Jul 2020

Australian banks have been inundated with loan applications since the start of the pandemic. Part of this activity has been driven by the promise of cashback offers for refinancing, as well as record-low rates.

As a result, the turnaround time for processing applications has increased, with applications taking weeks, sometimes months, to process. When the deal is approved and refinancing is complete, 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 applications have been in the processing queue for weeks?

In the case of clients refinancing to take advantage of a bank’s current offers and low interest rates, brokers need to help them weigh up whether it’s worth waiting for an application to be processed, rather than exploring other options. This is where it’s particularly important to help your clients assess all options and calculate the cost of processing delays, and keep them abreast of factors impacting approvals at the moment, such as applicant quality.

Right now, applications really need to be close to perfect. Applications are currently being rejected for simple administrative mistakes, due to increased demands on lending teams. Of course this is frustrating for brokers and their clients, but it highlights the role brokers play in giving borrowers the best chance of success upon loan submission.

Administrative considerations aside, borrowers also need to think about their priorities in choosing 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.

There’s been a large influx of applications for refinancing home loans to fixed rates 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 higher loan-to-value ratios.

Right now, loan applications really need to be close to perfect. Applications are currently being rejected for simple administrative mistakes, due to increased demands on lending teams

For brokers, these clients should be a priority, and rates can be a helpful starting point for checking in with all your clients. Brokers typically aim to contact their clients at least once or twice a year; if you’ve been lax in checking in with your clients, now is the time to contact them. 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 refinancing can seem daunting for clients, especially in uncertain times, it’s important to communicate to them 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.

If a borrower can’t change their home loan right now, think about how you can help them in other ways. Can you look at refinancing as soon as their income situation changes? Or could you help them reflect on 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.

For brokers with a client base that includes commercial borrowers, it’s important to note that those businesses that have used JobKeeper to maintain their workforce will need to forecast 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.

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 people and businesses can be complacent. Be proactive and help borrowers shore up their financing now so they can be prepared for potential scenarios as 2020 progresses – whether we see a stronger recovery or a more subdued end to the year.

Jason Fallscheer, Client director and credit representative, Pitcher Partners FinanceJason Fallscheer
Client director and
credit representative,
Pitcher Partners Finance