'Nothing is vanilla': Tarrant says finance is now a tactical fight for investors

Securing finance has become the hardest and most tactical part of buying an investment property, Phil Tarrant said on the Property Buzz podcast, citing conversations with buyer's agents and mortgage brokers during the week.

Tarrant said he had spoken to Arjun Paliwal, founder and managing director of buyer's agency InvestorKit, who broke the market into three parts: finding clients, arranging finance and actually transacting.

"He said the actual buying of property is actually starting to pick up," Tarrant said. Finding clients willing to act was the tough part, he said, because it was "a bit of a mindset thing" and investors needed to convince themselves to move.

On finance, Tarrant said Paliwal described the environment as more tactical than he had ever seen, and that the team at Finni Mortgages had told him the same.

"Nothing is vanilla right now," Tarrant said. "You've got to fight to get finance, got to tactically fight to get finance, which maybe I'll refinance that one over there and move that there."

Garman said he was hearing banks were loosening lending policies. Tarrant agreed lenders were "happy to do a bit of a deal" and would use current conditions to win market share.

Tarrant said strategies usually avoided, such as cross-collateralisation, may warrant consideration for borrowers with a strong principal place of residence, though he stressed he was speaking generally and was not licensed to give financial advice.

He said investors who transact now would likely look back favourably on the decision. "It's easy to not take action right now."

The levy fight

Tarrant's main criticism was directed at the Compensation Scheme of Last Resort, launched in 2024 to compensate consumers who received a favourable determination from the Australian Financial Complaints Authority but could not recover money because the financial firm involved had become insolvent.

Citing correspondence from the Mortgage and Finance Association of Australia reported by Broker Daily, Tarrant said the cost per credit representative last year was $5.72, rising to $67. That special levy sits on top of an annual levy of $37.

He quoted mortgage broker Melissa Ashcroft, who said the change would have a significant impact at both an industry-wide and individual level, and that "almost all the increases traces back to financial planning and advice sector failures".

"Seems like brokers will as part of the scheme be footing the bill that is not ours to carry," Ashcroft said in the correspondence Tarrant quoted.

Tarrant said mortgage brokers accounted for about 5.4 per cent of total complaints made to AFCA.

Garman disagreed, arguing the amount was modest relative to the protection offered. "I think it's also very fair if you're going to say it's $60 a year to make sure that the average Australian doesn't have a life altering financial impact," he said.

Garman said he had dealt with brokers early in his investing journey who pushed him towards interest-only loans that would have been the wrong choice for his circumstances. "That's why you shop around and get a good broker," he said.

Cheapest is not best

Tarrant also took issue with an Australian Financial Review report that ASIC wants brokers to explain when the lowest rate is not offered.

He said ASIC's audit of the largest aggregator groups found seven of the eight reviewed reported brokers did not recommend the cheapest home loan option in more than 20 per cent of cases, and that compliance with best interests duty could be improved.

Tarrant noted the same report found no evidence of brokers actively putting customers into inappropriate loans or favouring lenders paying higher commissions.

He rejected the ASIC commissioner's view that price is the dominant factor. "I disagree. I completely disagree," Tarrant said.

Drawing on conversations with investors over many years, he said: "I could probably count on one hand if I asked them a question, which lender did you go to, they would say it's because they had the lowest rate."

Tarrant said borrowers had been conditioned to equate the best loan with the cheapest interest rate, often at the cost of features such as an offset account. He said best interests duty applies to brokers but not to bank staff recommending their own products.

He argued the coverage was a beat-up and questioned who benefits. "The banks aren't happy that mortgage broker share is still growing," Tarrant said, noting around 80 per cent of mortgages are now written through brokers.

Listen to the full episode: Brisbane Clearance Rate Plummets. Is The Property Market Freezing?