Making sure the numbers add up

Based firstly on some advice provided by a friend, and then confirmed by their mortgage broker, the couple wrongly calculated the stamp duty concession that would apply to them, and hence wrongly calculated what they needed to borrow. With the broker failing to inform them otherwise, they thought it was all systems go.

Until the morning of settlement. It was then that these borrowers found they didn’t have enough money to settle, and they had to scrounge around madly at the last minute to come up with the residual funds that amounted to thousands of dollars. Luckily, in this case, the disaster was averted. But this story has stuck with me, as I was so astounded that they could have been so poorly informed by their broker.

It made me wonder if mortgage brokers are indeed letting their clients know what costs they’re up for when buying a property, and whether they’re correctly estimating these. Hopefully, this anecdote is not a common occurrence, as it is not only potentially disastrous for borrowers putting their trust in their mortgage broker, but it’s also detrimental to the mortgage broking industry overall, as these errors tarnish our reputation.

In most instances, when a borrower goes to a mortgage broker they are not aware of all the costs involved in completing a property purchase, and it is the broker’s obligation to inform them of the costs they’ll incur and be liable for.

One of the first things brokers should do is to draw up an estimate of the all the different costs a client may be up for, which may include:

• Deposit

• Solicitor’s fees

• Stamp duty – which may include concessions for first home buyers

• Government charges and fees

• Rates

• Building and pest inspections

• LMI

We can also look at any grants the borrower may be entitled to, which would be deducted from these costs, and then we need to go through the estimate thoroughly with our clients and make sure they understand it.

This estimate of outlays is just a starting point. When the client has signed a contract for a particular property the costs can then be confirmed – and, of course, while the exact costs of some of these will need to be provided by the client – such as solicitor’s fees and the building and pest inspection – others can be provided by us – such as stamp duty. At the point of signing the legal documents it should be a matter of priority for brokers to again sit down with their client and run through the numbers, noting exactly what the bank is making available in terms of borrowings and exactly what the client’s monetary contribution will be – that is, how much cash they will need to put towards the purchase and costs.

Ensuring a client knows exactly what their financial contribution will be is essential to ensuring the transaction settles. If they don’t know and end up having insufficient funds then the consequences can be quite horrendous. In the best case scenario, they can be liable for default interest (if they can get an extension and the seller then chooses to charge it). In the worst case scenario, they’ll be unable to settle and have to pay the potentially expensive penalties associated with that, such as forfeiting their deposit, which can run into the tens of thousands of dollars.

Tell us about your experience. Has anyone else ever been in a situation where their clients didn’t have enough money to settle on their property purchase?

Ruan Burger, managing director, TIME Home Loans

Ruan Burger has been in the mortgage broking business for nearly a decade, starting out in the booming town of Gladstone after working in the banking industry for many years. He formed Time Home Loans early in 2013 after moving to Brisbane and the business has grown significantly since then.

Ruan is a nationally recognised member of the MFAA. During his career as a mortgage broker, Ruan has won – and been a finalist in – several awards. He won the MFAA Mortgage Broker of the Year award in 2012 and 2013 as well as the MFAA’s Award of Distinction in 2012 and was a finalist for the MFAA’s Credit Adviser award in 2014.

Ruan believes it is his ‘love of the game’, his strategic alliances and colleague morale that promote his business as a leader in the field.