In every CPD our trainers are hearing from agents that the property process brings so much stress to the lives of vendors and purchasers – not to mention the stress it creates for themselves as agents. One aspect of the process that causes stress is the financing side of the deal. When purchasers are obtaining finance to acquire a property, this can often be a long and tedious process (particularly in the current environment with the findings from the Royal Commission into the banking and finance industries). At this point, real estate agents often become aggravated by the mortgage brokers and vice versa.
When a real estate agent talks with a buyer and the question of finance is raised, the response will be ‘that their funding is in place’ either with a bank or through a broker. On occasion, potential buyers will say they are ‘just looking’ and a real estate agent may recommend them to a local bank manager, broker or in the case of some larger franchised property agencies – a linked mortgage provider (i.e. Ray White Real Estate may refer the buyer to LoanMarket, LJ Hooker Real Estate to LJ Hooker Home Loans).
So the question for agents is, how can we ensure that as an agency we are meeting our obligations to our clients and continuing to protect the assets that have been put into our trust?
Mortgage brokers play an important role in assisting borrowers to source funding when purchasing a property. They will advise their client on appropriate lending options, costings which may include lender mortgage insurance, stamp duties and other borrowing costs. Under the National Consumer Credit Protection (NCCP) Act 2009 legislation, the broker needs to assess what the maximum amount a person/s can borrow without creating financial hardship for that borrower.
The role of an experienced broker will often go further, as lenders may have issues with certain types of properties and they need to match the property choice with the lender. It could be that the lender has a maximum LVR (Loan to Value Ratio) on certain postcodes,or the lender may have a reduced LVR to 70% without mortgage insurance, while some lenders may just not provide finance to that postcode.
Lenders have regulatory obligations when financing a residential dwelling that is to be occupied by the owners or used for an investment purpose. If lenders fail to follow these obligations they can be fined, prosecuted or have their licence to offer credit withdrawn. Currently, ASIC is pursuing several banks for failure to follow responsible lending guidelines. The essence of responsible lending can be summed up in four points.
The loan offered must meet the borrower’s requirements and objectives
The lender must gather financial information from the applicant
The lender must verify that the financial information supplied is correct
The loan offered will not create substantial hardship for the borrower.
With all of these requirements, the process of loan appraisal is complex and time consuming for the lender. With some lenders operating offshore processing centres, delays can amount to not just days but in some cases weeks.
What this process means for real estate agents, is that you should be talking to your purchasers about confirming their finance arrangements as quickly as possible, and providing their personal information to their broker or lending institution, so that they can be ready for settlement if they proceed with the purchase of the property.
The financing process is complex and mortgage brokers and lending institutions are currently under scrutiny of their practices after the release of the report from the Royal Commission into the banking sector. As such, you, as a real estate agent, need to be aware of the timeframes and the processes that are involved in a person gaining finance.
If you want to know more about this process, when you make your choice for CPD for the coming year – choose our online program for Real Estate Sales (including the finance process), which explores this issue in great detail and will give you a broader understanding of the financing process from an agent’s perspective.