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My previous experience at a major bank made me see that banks like sticky customers that they can sell as many products to as possible. But they aren’t good at reviewing loans. That’s where brokers come in. We can help customers and generate more business to boot.
Selling as many products per customer as we could was a very big focus for the bank.
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Banks like to make the clients 'sticky' and keep customers with them for as long as possible. Even if you had written your targets for mortgages, banks always wanted to sell more; ‘Why not sell more credit cards, insurance on cars, income protection, personal loans, different transaction accounts?’ and so on.
Many times I refused to sell a credit card to a customer if they weren’t good with them – unfortunately, as credit is quickly and easily spent, some people just aren’t good with cards and many have poor credit ratings if they’ve struggled to pay off their debt.
Despite this knowledge, banks pushed us to sell and they still push for sales to this day, advertising discounts and incentives on loans to draw in new business.
In terms of home loans, all banks sit on a headline, standard variable. Often, they offer new clients a discount on that variable. For example, if the rate is 5 per cent, they'll offer the new customer a 1 per cent discount, bringing it down to 4 per cent – which, today, is competitive.
However, in two years’ time, I foresee banks offering a 1.5 or 2 per cent discount to new customers – so if the rate was 5 per cent, new clients would be getting 3 per cent on their home loan.
As a bank’s focus is always on new business and not on existing clients, what this means for prevailing customers with loans is that they're stuck and aren’t getting the best value. Banks know it’s hard for customers to swap banks, particularly if they have multiple products with them.
Unfortunately, many people trust banks because they're so big and renowned. But, because they count on customers not reviewing their loans or credit cards, they can get away with offering new clients bigger discounts to draw business in while ignoring the rest. They won’t call their customers to thank them for their loyalty over the years, or review their loans, because at the end of the day, a bank’s focus is on profitability and shareholders.
I was never comfortable with this knowledge. I didn't want to give clients the raw end of the deal. Many customers at the time would contact me and ask whether or not these new ‘deals’ were available to them too and I couldn't do very much to help them. I'd have to say, "Sorry mate. There are really good rates, but it's only for new business."
However the power of a mortgage broker is that we keep things honest. Without brokers, there would be no competitiveness.
If a mortgage broker wants to be helpful, what they can do is review their clients' loans. This not only helps customers save thousands of dollars every year, but helps generate more business through referrals, because people love it and they appreciate your help.
We have processes and procedures in our business that allow us to go back every year, call every client, price them for free, and let them know that we can help drop their rate to make sure we get them a cheap deal.
You can contact the banks and say: “I'm contacting you about this client. I will move them to a different bank because they can give me a better deal. Can you please match this new deal and reduce the rate?" Nine times out of 10, the bank will do that, but brokers need to proactively make the calls for clients.
If a customer comes to a broker, we can make sure that we review their loans for them because clients won’t, or simply won’t know to. They're not going to review their own cars when they get them serviced – they take cars to a mechanic to look at them. It’s the same principle with a mortgage.
If banks don’t support existing clients, then they lose business. This provides the best opportunity for mortgage brokers to help. If banks aren't being fair, we can support these customers and give them the best deal possible – it’s as simple as that.
