The Forty Thousand Dollar Phone Call

“NOW it’s mortgage brokers facing digital disruption in the third wave of property finance.”

I read that headline earlier this week in much the same way that my three-year-old reads his bedtime stories.

By guessing.

“Mortgage brokers facing digital disruption” … hmmm, OK, so maybe it’s like Uber for home loans?

“The third wave of property finance” … OK, nope. I have absolutely no freaking idea what that means.

But it’s my job to understand, so I kept reading.

Turns out the article was about a new mortgage broking app called Uno, which allows the public to broker their own deals.

It’s the creation of a clever bloke named Vincent Turner, who, some years ago, actually developed the software that 90 per cent of Australia’s banks and brokers use.

Interesting.

Now he’s turning the tables on the industry by “providing home loan customers with the same screens that are used by mortgage brokers”.

“We are establishing the third major wave in the property finance industry: consumer-brokered home loans.”

Ahh, so that’s where the third wave analogy comes from.

“At Uno, we don’t like to think of ourselves as a mortgage broker. We don’t have a sales commission structure.”

Very interesting.

After all, the $1.3 trillion home loan market does need a bloody good shake-up.

About half of all home loans are set up through mortgage brokers.

The banks pay them a collective $2 billion a year in upfront commissions, as well as ongoing kickbacks for the life of the loan (which is why some brokers sign you up to a three-year fixed loan — it also fixes in their commissions).

The government is worried that conflicted commissions result in bad advice.

After all, under the commission structure, the more you borrow the more they make.

So I called Vince at Uno, to talk about the “third wave mortgage revolution”.

He had his pitch face on: “Look at any other vertical: real estate, jobs, cars … there’s been a disruptive, revolutionary platform that consumers embraced.

“ That hasn’t happened with mortgage brokers. The home loan market is ripe for disruption … and we intend to own that category.

“Once consumers understand that they’re getting a better outcome, you don’t need to advertise. People just flock to it.”

Flocking hell.

It all sounded very “fintech” to me. Very “our office has a ping pong table and the blokes who work here have beards and wear long pants without socks”.

When it comes to finance, you need to bypass the buzzwords and follow the money.

Barefoot: “So, what happens to all the kickbacks the banks pay you for lining up loans, cobber?”

Vince: “All the money goes back into the platform … to enhance the user experience.”

Barefoot: “What does that even mean? Oh! You’re trousering the commission’s, right?”

Vince: “Well, yes.”

Barefoot: “Dude, you’re about as revolutionary to the mortgage market as the Kia Rio is to the luxury car market.”

And there you have it. Strip away the fancy technology and it’s the same old flog.

Yes, I’m grumpy. And, no, my advice doesn’t change.

If you’re getting a new loan, you should look at the smaller, online lenders like UBank, which for years has consistently offered one of the cheapest no-frills loans for people buying with a 20 per cent deposit (and that should be everyone, in my opinion). They don’t pay commissions because they’ve got Aldi-like pricing, 3.74 per cent at the moment.

There are other lenders, like ING, and a ragtag of second-tier lenders, that occasionally offer sweet rates to win new business.

If you want to go with one of them, you should go through a cashback broker, who will rebate the trailing commission they receive (but keep the upfront).

Do this over the life of your home loan and it can save you upwards of $40,000.

Here’s the thing: on a $500,000 loan, the banks pay brokers $3500 upfront and around $1500 a year to get your business. And that’s your leverage right there. That’s how much it costs the bank to replace you.

So, if you’re refinancing, the simplest thing you can do is to call your bank and put the hard word on them for a better deal. I’ve been saying this for years — and swear on my little fox terrier’s grave, it works.

Not a week goes by that someone, somewhere, doesn’t email, tweet or Facebook me telling me that they’ve rung their bank, bluffed that they’ve been offered a cheaper rate (usually quoting UBank’s rate) and saved themselves thousands.

Uno you should do it. Go on. And shoot me an email when you get a better deal.

Tread Your Own Path!