Mortgage Brokers and Housing Bubbles
Mortgage brokers play a vital role in the housing economy in New Zealand, by providing an expert bridge between customers and banks and other lenders. Brokers handle about 40% of all the mortgages written in New Zealand, and most of the business they generate comes from customers who otherwise would have difficulty gaining a mortgage or at least getting a good deal.
The demand for mortgage brokers Lower Hutt rises and falls with the demand for houses, but they find a lot of new business when the housing market is booming. During normal times the housing market is driven simply by the demand from first time buyers wanting to own their first home. They are buying off existing householders who are wanting to upgrade or change their house.
In a housing boom property investors become very active, because they see that there is good money to be made if they can buy a property and hold onto it for even a short time. During the housing boom prices are rising, sometimes dramatically, and so this reflects back to the first home buyers who steadily find it more and more difficult to buy their first house. Well other factors are involved it is the property investors who are changing their behaviour, and the mortgage broking sector is vitally important. Property investors are heavy users of mortgage brokers for a number of reasons, including convenience and the focus on a good deal. However for a lot of investors it takes a good mortgage broker to actually organise a good mortgage for them, because otherwise it will be too complex and difficult.
The mortgage brokers flock to the property investment market because it is easy money if they can win business as property investment business generally results in a lot of repeat business and referrals. What tends to happen is they get very creative for their clients, and enable their clients to purchase more properties at a higher price than otherwise would be possible. This is great for the mortgage broker, who is paid by commission based on the size of the loan, but it is not necessarily good for many property investors who find that the mortgage broker has exaggerated their ability to make the loan payments.
For all that a lot of new investors get into the market during property bubbles, and for many of them their loans are based on exaggerated claims by the mortgage broker. The net effect is that property prices rise even further, and the housing bubble carries on. If mortgage brokers Upper Hutt were to stop operating then the current housing bubble would be stopped in its tracks, but of course this will never happen.