Yesterday I was thinking about this crazy surge of first home buyers, purchasing properties while the Boost and the Bonus last, and how strange it looks in this kind of economy.

I know, everyone has their reasons an life doesn’t stop just because we went into recession, but if I was buying now - I would think hard about who I want to borrow from.

If you haven’t lived in Australia for long, this thought might not cross your mind - nonetheless choosing your lender is very important step in buying your house. Here are some considerations for you to think about, when shopping for a loan.

There are many lenders, some of them are banks / credit unions and some are non-bank lenders or so-called “Mortgage Managers”. There are pros and cons to non-bank lenders, and I would say that now, in this economical climate, the cons outweigh the pros.

Pros

• They will give you a loan even if you don’t have a deposit.
• If you are self employed, they might ask for less than a mountain of paperwork to prove your borrowing capacity.
• They are more forgiving to dodgy credit history.

Cons

• Their loans are not cheaper than the bank’s loans any more.

They used to lend for less and that was their way of getting customers, but now this isn’t possible any more.

• If there is interest rate cut and you’re on flexible interest loan they may or may not pass it on to you.
• If RBA raises the interest rate, a non-bank lender will most definitely pass it on to you, whereas a bank might decide they will take the hit and won’t raise the interest rate to avoid putting people in mortgage stress.
• Their loans often have high exit costs.

Why is this important? Assuming that there was a rate cut which they didn’t pass on to you, you have found a much cheaper loan elsewhere and want to refinance, the exit costs kill a large part of that profit.

• They will repossess your home and evict you much faster than a bank, for the following reasons.

Banks are bigger and stronger, regulated better and have more ability to withstand your default and give you the chance to recover.

Non-bank lenders are smaller and take more risk allowing you some time to get your act together and come up with the money. Because if you eventually don’t, they will be forced to sell your home later, and then there might be many other repossessed homes on the market - so the prices will drop and they won’t recover the loan back.

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