Service counts when finding a mortgage broker: Mark Bouris

The decision to keep official interest rates on hold last week means the economy is looking strong in the opinion of the Reserve Bank economists.

While most of the metrics considered by the Reserve Bank – European sovereign debt, the US economy, Chinese growth – are out of our control, the consequence of changing interest rates impacts on everything we do.

When we wait for the RBA’s decision on the cash rate at the start of each month, we tend to convince ourselves that interest rates are the only thing that counts in a home loan. But a mortgage is not only about price; there are also features and service, either of which can be as important as price.

I’ve written recently about mortgage pricing, pointing out that the big four banks have 90% of all new mortgages, yet their mortgage rates are around one percentage point higher than many of the non-banks and credit unions’ home loans.

And when it comes to features there are lenders who still won’t let you pay fortnightly, won’t let you access 100% offset on the loan account and won’t allow redraws on your excess mortgage payments.

So, price and features differ in the mortgage market, but it’s service that may be the most important.

Borrowing to buy property is a long-term commitment and is the largest debt most people will ever take on. Most borrowers admit they need advice, guidance and management. They need service.

When I was young, loan managers at the banks formed relationships with the people they approved: they visited customers at their homes; they came over to say hello when they saw you at the club; they gave advice and they contacted you personally if the loan was in arrears.

I’m not claiming that this was a golden era of customer service: banks themselves thought it prudent for loan managers to stay close to borrowers, to know their customers, to be proactive when someone lost a job or there was a matrimonial break-up.

When the 1990s started and hundreds of bank branches were being shut down, we were sold on a new version of the bank-customer dynamic. We were told that relationships were inefficient and the new era was about transactions.

If you look at all the advances in banking in the past 25 years, most of them are concerned with transactions: ATMs, phone banking, internet banking, iPhone apps. And we love it.

But what about service?

Back in the ‘90s, my business offered mortgages about one percentage point lower than the banks’, and we worked on having the best standard variable rate mortgage in the market, with redraw facilities, weekly and fortnightly payments, etc.

But the interesting part was the service. Originally, some high-paid American banking consultants advised us to build an electronic, distributed banking model, which essentially meant no branches but lots of call centre and internet access.

Guess what? The borrowers wanted service. They wanted a branch on a high street, where a manager took an interest in their circumstances and was part of the community. They wanted advice, guidance and management.

We started building branches, we trained loan managers who became their own small business owners and we ensured that the mortgage was not simply a transaction or a product: it was a relationship in which both the lender and the borrower were invested.

By 2003, the non-bank lenders had taken 15% of the Australian mortgage market, from a standing start in 1995.

And it wasn’t only the non-banks proving that Australians wanted to talk to experts about their mortgages. We have also seen the rise of mortgage brokers since the mid-1990s as borrowers sought out an actual person to give guidance.

Brokers now account for around 43% of all new mortgages in this country.

So now, even in a time when technology is king, service is still at the centre of the proposition for Yellow Brick Road.

I think it’s OK for Australians to feel uncomfortable with the transaction-based mortgage approach and to start demanding that they deal with a loan manager they can see, a face they can recognise and an expert they can be guided by.

Service has not died out. Ask someone who’s really happy with their mortgage: nine times out of 10 they’ll have a relationship with their lender.

Good service with your mortgage is still available, but if you want it you have to make a choice.

Mark Bouris is executive chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting and tax, and insurance.

This article first appeared in News Ltd. newspapers