Deposit Power GM Keith Levy gives brokers 10 reasons why deposit guarantee may just be one of your most potent weapons.
Deposit guarantees were developed in the late 80s as an alternative to bank bridging loans for non-bank lenders. Since then, they have evolved as much more than a bridging loan alternative and have assisted nearly one million Australians purchase property.
Today, all major banks and most lenders offer deposit guarantees. Why? It’s very simple: competition and customer satisfaction.
Deposit guarantees were originally developed to assist non-bank lenders compete against the banks’ bridging loan product back in the early days of securitised lending. Bridging loans were typically only available to existing bank customers and this gave the banks a significant advantage over the non-bank lenders when competing for new business.
The non-bank lenders had to find an alternative and the concept of the deposit guarantee was born. So why do so many mortgage professionals continue to ignore what could be one of their most
important weapons in their fight to grow their business?
The issue lies with some brokers’ reluctance towards offering ‘add on’ products to their customers. Deposit guarantees are technically not an insuranceproduct, but are often perceived this way and deemed more difficult to arrange than they actually are. We find that once a broker has taken the step to arrange their first deposit guarantee, they are generally more willing and confident to arrange more.
Here are 10 key reasons why deposit guarantees may be one of your most potent weapons.
01| SECURE THE CUSTOMER
Every new customer’s financial situation is slightly different. Being armed and equipped to find that specific solution for a potential new customer can be the difference between winning and losing the deal. Whilst arranging the home loan is the clear goal of every broker, often the customer’s first concern after the loan has been approved is how to pay the deposit. A broker who can provide a convenient deposit solution for the customer will have a much better chance of securing the end loan.
02| SIMPLE TO ARRANGE
Once the customer’s finance is in place, the process to arrange a deposit guarantee is usually quite simple. They can either be arranged online with instant approvals or by fax within 24 hours.
03| INCREASE YOUR PROFITABILITY
Time is money and brokers should expect to be remunerated for their time and expertise. Brokers who arrange a deposit guarantee can receive a commission, usually a significant percentage of the fee paid by the customer. As fees can vary from $150 to $15,000, commissions can be quite lucrative for the broker. There is no downside to the customer as the fee paid is the same regardless of whether a commission is paid or not.
04| COMPETITION
Quite simply if you don’t offer the deposit solution to your potential customer chances are that someone else will. In addition to mortgage brokers and lenders, solicitors, conveyancers, financial planners and even real estate agents also regularly arrange deposit guarantees for purchasers.
05| FIRST HOMEBUYERS
First homebuyers still account for nearly one quarter of all housing loans approved. Many struggle to put a 5% cash deposit together to meet lender requirements. Deposit guarantees are the ideal solution when it comes time for them to put down the 10% deposit to secure the property; they can be used to top up their own cash deposit or can be used to pay the full 10%.
06| CONVENIENCE
The input required from the customer is minimal – one form, one fee and the deposit guarantee is usually sent direct to their solicitor. From a broker’s perspective, the application form can be btained and signed at the same time as the loan application, and once submitted, the broker usually has minimal further involvement in the process.
07| INVESTORS
Investors are typically quite astute and experienced and look for the most convenient and cost effective buying experience. As they often borrow 100% of the purchase price to maximise taxation benefits, they will still need to pay a deposit. Investors are ideal candidates for deposit guarantees and repeat business for the broker.
08| IT’S SAFE
Deposit guarantees have been around for nearly 25 years and are backed by large insurance companies. If a claim on the deposit guarantee is made, the deposit is usually sent to the nominated stakeholder to act as the cash deposit within 48 hours. On average, claims are made on less than 0.07% of all guarantees issued.
09| FLEXIBILITY
Deposit guarantees can be issued for nearly all types of properties, at auction or private treaty, for any term up to 48 months and for any amount up to 10% of the purchase price. A once-only upfront fee is paid so there is no issues with fluctuating interest rates, and it’s GST free.
10| CUSTOMER SATISFACTION
A satisfied customer is the best form of advertising a broker can have. For further information visit depositpower.com.au
