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Bank Vs Broker – what’s the right choice? What’s the definition of a High net worth individual in Poland? And when to apply for a CEE mortgage….

Bank or broker?

This is a question we are asked a lot by investors in CEE markets and I’ve given it a lot of thought.

The bottom line is this – in many CEE markets, there is no doubt that the new investor (and in fact often the very experienced investor), needs some help through the maze of a mortgage application process.

So, while I don’t think there is a one size fits all answer to this question, I think there are some clear considerations and, to be frank, they are not the same as those we might take into account in the UK.

This week, Peter Bennett and I are travelling to Bratislava and Prague to talk to banks about mortgage products and specifically to communicate what it is PS investors are looking for in terms of products and style of service.

In fact, in several markets, it’s not the products themselves that investors tell us have the shortcomings, but the levels of service – most notably, the level of communication.

The reason I mention this is that it’s directly relevant to the broker/ direct to the bank issue.

PS are certainly not brokers and we do not recommend mortgage products, but what we have found over and over again in all markets, is that building a relationship, a personal relationship, is what really can make the difference in these markets.

Credit card conundrum

And, I think it’s become clear to me that it’s from our side – PS, in this case – that the effort must be made. Why? Because we understand what we want and lenders and brokers are increasingly prepared to move towards our expectations – if they are clear what is that we want.

The gap can be pretty big.

Here’s an example.

We talked to one lender in Bulgaria who explained that if a borrower had five credit cards with, let’s say, a £10,000 facility on each, that would be considered as debt even though no money was outstanding.

And that debt would be spread across the life of any loan in making calculations about credit status and net income.

Now, this is pretty bizarre to most investors, as it is to me.

Of course, because we are there in person, we are able to explain how things would work the exact reverse way in the UK – a credit facility and no debt would be considered a positive.

These things cannot change overnight. And I think this is where the personal relationship can come in very useful.

So, on the plus side for a broker, we can see how one can help with this, what we might call, cultural divide.

Often this is more important that the service we would normally expect a broker to provide – sifting though large numbers of possible mortgage products to find the most suitable. In markets where the choice is not massive, this clearly has less value.

Paperwork advantage

But there is a the paperwork advantage to using a broker as well. Simply weaving your way through all the paperwork involved with a mortgage application – especially as it’s also in another language – can be extremely daunting. A broker can tell you what to send, why and when – a service not to be undervalued.

In my experience, I’d also say that you will rarely pay more for a product by going through a broker rather than dealing direct with a lender.

And if we add to this the obvious fact that, while product range tends to be fairly narrow in these markets, a broker will certainly offer you more than a single lender, we have to ask: why not go through a broker?

So, for this reason, my view is that, in the first instance, if an investor doesn’t know the financial products market well in a market, that they should go through a broker. But that is just my personal preference.

But there can be advantages in dealing direct.

When you go direct to a bank, the big advantage is twofold – one it can be quicker and two, you can, often, build up a more personal relationship with the lender that can prove all important.

I say this because I‘ve learnt that a ‘No’ from a lender in these markets doesn’t always mean No.

Very often an explanatory chat can change the verdict and an applicant is then accepted because the original decision was based on a misunderstanding.

For those investors who have or are building a fairly substantial portfolio, dealing directly with lenders has the advantage of the possibility of a bespoke product. This can be especially useful for investors whose circumstances are what I might describe as ‘odd’, by which I mean non-conventional, as in no fulltime employment with a regular salary and so on. For a bespoke product we’re probably talking about 20 units and up, so a substantial investment.

But it’s worth bearing in mind that in general banks will try pretty hard to accommodate those they consider to be good credit risks and what they classify as ‘high net worth individuals’.

And here’s something to bear in mind, during a conversation with a Polish banker recently, he referred to this category and when we pressed him to define it, he said it was anyone with an income in excess of €25,000!

A word about mortgage applications.

We get calls now and again from investors, especially in Czech. They’ve applied for a mortgage as soon as they’ve made their first payment and the loan offer has come back 30% below the price!

I can honestly say here – don’t panic!

Czech banks can be ultra conservative and if you apply for a loan at a very early stag they will sometimes simply look at the purchase pruice and the developer’s drawings and knock a large percentage off.

If you go back to them later for another valuation you will get a far more realistic valuation and you can often get (depending on individual status, of course) 90% of loan to value. But bear in mind even this much more realistic valuation will be under market price at this point.

The trouble is that in Czech a mortgage offer may be valid for a whole year nd so investors are tempted to get a valuation in early. Be warned!

I’d advise going through the same process at most six months before completion.

In Poland the mortgage offer tends to be valid for more like three months, maybe a little more. But, either way, it’s important to check how long it lasts.

Debbie Le Goff, Head of Legal and Business Affairs

POSTED BY ROBIN BOWMAN ON THU 22ND NOVEMBER AT 16:52 GMT

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CONTRIBUTORS

Robin Bowman
Deborah Le Goff
Anna Grybel
Noreen Lucey