Big mortgage + big deposit = big rate discount possibilities: mortgage brokers

Larry SchlesingerDecember 7, 2020

Proactive borrowers with home loans in excess of $500,000 and a strong equity position are well placed to negotiate substantial discounts off their current home loan rate if they’re willing to putting in the leg work, say mortgage brokers.

The issue of negotiating mortgage discounts has risen to prominence once again with the launch of Mark Bouris’s Yellow Brick Road’s 115-basis-point discount campaign and other substantial rate discounts offerings aimed at new borrowers or those refinancing.

Business Spectator’s Robert Gottliebsen wrote recently of a mortgage and deposit war erupting on the back of Yellow Brick Road accessing cheap funding from Macquarie Bank and a new TV promotion – set to coincide with Mark Bouris hosting Celebrity Apprentice – “to inform borrowers that they can reduce their mortgage rate by 0.3%”.

According to Gottliebsen, all borrowers have to then do is take this home loan approval with them to their incumbent lender and demand a rate cut and if you are with certain banks you will get it – the result a mortgage discount war and the banks returning to overseas markets to access cheap funding.

Yellow Brick Road declined to comment on its upcoming campaign, which Property Observer understands won't kick off until at least after Easter given Channel Nine's program scheduling, suggesting Gottliebsen may have jumped the gun on the campaign. YBR did say that its current 115-basis-point offer had been extended to the end of February.

“We’ll continue to use our relationships with Macquarie and [Channel] Nine to build and promote great offers to the public and deliver them via our national network of branches,” a spokesperson for YBR said.

Property Observer discussions with mortgage brokers indicate that Gottliebsen is more or less on the money – lenders are prepared to offer a discount if there is a risk of losing a good borrower, especially one with a big loan, but warn that getting multiple home loan approvals can damage your credit rating if you don't take them up.

Smartline mortgage broker Michael Daniels says negotiating a discount can definitely be done provided the client is prepared to do a fair bit of work.

“Clients are apathetic, but there definitely are discounts out there,” he says, arguing that competition is fierce between the four major banks.

However, he says banks will not just provide a discount if you tell them you can get a cheaper rate online.

“The first phase would be an email from a broker confirming the offer that they can make.

“This is more of a pricing email than an approval, but it is assumed that the broker would only be quoting a loan that they are confident would be approved,” he says.

“If this does not work, then a full submission will need to be made to show the current bank that their client is now a genuine flight risk,” he says.

This should do the trick, but if it does not, he says borrowers can, with the help of their broker, secure a discharge authority from an alternative lender (offering a lower rate), which is required to get a mortgage off title.

Daniels says this worked with a client who believed he was paying a mortgage rate 20 basis points higher than he should.

An initial letter from Daniels to the bank, secured the borrower a five-basis-point discount, but it was only when he the client presented the lender with a discharge authority notice that the bank wilted and gave him what he wanted.

“That’s when the bank knows you’re serious and when their client retention teams are likely to takeover,” says Daniels.

However, he says in most cases an email from a broker should suffice to get the attention of your bank manager.

Mortgage Choice head of corporate affairs Belinda Williamson agrees that there is competitive tension between lenders at the moment.

“As you probably know, in terms of funding costs it is generally more beneficial for a lender to keep an existing borrower by offering an incentive to stay than it is to attract a new customer.

“More incentives are likely to be offered to borrowers who have a high loan amount ($500k+) and a low LVR (under 80%). However, it still does come down to lenders' policies,” she says.

Depending on the borrower, their loan type and lender, Williamson says it may be possible to get discounts of up to one percentage point off the standard variable rate.

“It is definitely worth anyone's while to enquire and do their best to negotiate. If you don’t ask, you won’t receive,” she says.

Williamson says that even though basic variable rate borrowers already have the advantage of receiving the lender’s lowest interest rate that can also try to negotiate.

She says borrowers don’t need to get loan approval with another lender to negotiate a better rate with their existing lender and adds that borrowers should be mindful that multiple loan applications can impact their credit rating and hence their ability to borrow in the near future.

“There are other tools that borrowers can use to negotiate a better loan deal before going to the extent of apply for a loan offer from another lender (hence, adding a notch to their credit record) for the sake of price matching.

“For example, a borrower could ask their mortgage broker to use their lender relationships to do the negotiating for them or to shop around for ‘cheaper’, better suited loan.

“A borrower could also use lenders’ marketing material to negotiate based on an advertised rate. In any case it is important that the borrower is negotiating based on similar loan products,’ she says.

Don Nicolussi, a mortgage broker with Home Loan Warehouse, says pricing or interest rate is a very important consideration “but as brokers we are constantly on the look-out for innovation and flexibility in the area of lending policy and product options”.

“As brokers we welcome competition in the banking sector if it means more options and favourable pricing for our clients in the long term.

“That is, a strong industry with the right number of lenders,” he says.

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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