Choosing the right lender can be a difficult task. It's tempting to simply assume they are all well regulated, properly funded and won't let you down - but how can you be sure?
There are various things you can expect from a good lender that should put you at ease and give you the confidence to expect a decent service from a responsible organisation.
As well as offering a competitive range of products, the lender should also be transparent with fees and rates, while offering choice and a good service. If they're certified by bodies such as the Consumer Credit Code, then there is standard information that has to be made available to you.
Richard Serafin, sales manager, Carrington National, says: "Marketing today is geared towards advertising a headline interest rate and unfortunately many clients only shop around for the best rate. A lender who is offering the cheapest interest rate doesn't necessarily offer the best overall product to suit your needs. Consumers need to look beyond fancy marketing and look for lenders that listen to their needs and help them formulate a strong home loan product that meets the client's short and long-term goals."
David Wakeley, CEO, Virgin Home Loans, believes it's important for a borrower to trust their lender.
"You have to be fully comfortable and trust your lender. If you're struggling to find interest rates or fees on a website, it indicates they're being hidden. If the comparison and headline rate are far apart, that signifies fees, if together, than there's more transparency," he says.
Responsible lending debate: Bank vs non-bank lenders
There's some tension at present as the banks attempt to hold onto their market in the face of increasing competition from non-bank lenders. This has led to calls of irresponsible lending in both camps, as each tries to use persuasive tactics and entice customers with bigger home loans at better rates.
This issue has concerned the federal government, which has set up a home loan practices lending inquiry to review potential decline in lending credit standards. Attacks have been aimed at non-bank lenders, but many of those believe it's the banks that are to blame.
John Mohnacheff, managing director of Beat Home Loans, says he's seen plenty of examples of banks lending in a situation that wouldn't pass the lending criteria of most non-banks.
"I've seen stuff going through the major banks that non-bank lenders would never touch. We see stuff that amazes us, Liberty and Beat are very competitive and we try to do the best rates, but we've lost deals we never imagined could be done by a bank," he says.
The Australian Bankers' Association (ABA) has strongly defended banking responsibility, saying its stringent lending criteria are always rigorously applied.
David Bell, chief executive, ABA, says: "When a consumer makes an application to a bank for a loan, or wider credit facility, the primary test is: 'Can the borrower afford the commitment on the loan?' Consumer credit is regulated by the Uniform Consumer Credit Code (UCCC) and lenders who comply with that have an obligation to ensure the borrower can repay the loan."
Bell also emphasizes that banks, as deposit-taking institutions, are regulated by the Australian Prudential Regulatory Authority (APRA) and are therefore subject to another set of criteria governing lending risk, which the non-bank lenders are not subject to.
"There are some fringe lenders in the financial services market who don't meet the banks' stringent lending criteria. It's not in the interests of banks or consumers to lend money in a way that doesn't comply with regulations," says Bell.
What protection do you have?
When choosing a lender, it's a comfort to know what protection you have if things go wrong with the biggest financial transaction of your life.
The Consumer Credit Code governs all credit transactions in Australia. The code states that credit providers such as banks, building societies, credit unions, finance companies and businesses, must tell you what your rights and obligations are in any credit arrangement, including home loans.
Credit providers are required by law to truthfully disclose all relevant information about your arrangement in a written contract, including interest rates, fees, commissions and other information which in the past was often hidden.
With this in mind, it's a good idea to study the code (http://asic.gov.au) and make sure any lender you deal with complies with the requirements.
If you're thinking of dealing with a bank, then APRA regulations apply (www.apra.gov.au).The authority doesn't cover non-bank lenders, but has jurisdiction over deposit-taking banks. One of its aims is to "ensure financial promises made by institutions we supervise are met within a stable, efficient and competitive financial system".
If you've already engaged with a lender and feel you've been deceived or badly advised, then there are other routes you can take.
The Australian Securities and Investments Commission (ASIC) doesn't legislate for lending as such, but can get involved if you believe the lender has acted irresponsibly.
A statement from the commission says: "ASIC regulates all lenders (bank and non-bank), but only to the extent of the general conduct provisions in the ASIC Act (misleading and deceptive conduct or unconscionable conduct). We are not responsible for more detailed regulation of lending transactions for consumer lending."
Another route to take if you have a grievance against a lender is an ombudsman. The Credit Ombudsman Service (COSL), previously known as the Mortgage Industry Ombudsman Service Limited (MIOS), is a free, independent external dispute resolution service, giving an alternative to legal proceedings. (www.cio.org.au)
The Banking and Financial Services Ombudsman helps individual bank customers sort out unresolved complaints with their banks. (www.fos.org.au)
To get the best help and advice on your home loan and lending needs, check out the latest issue of Your Mortgage on sale now.
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