Is Splitting Lending Across Banks A Good Idea?
You might be thinking of splitting lending across banks, but the bank doesn’t want you to do this.
The bank will try whatever they can to keep all of your banking, lending and even insurance and investments like KiwiSaver. The banks make money from each of these things, but they also know that people with all their products with the bank are more likely to stay with that bank even if there are problems or poor service.
The banks love to have control too.
Don’t Put All Your Eggs In One Basket
We all have heard the saying “don’t put all your egg’s in one basket, but unfortunately most people don’t think that this applies to lending … but it really does. The real meaning of this is that one should not concentrate all efforts and or put all of your resources in one area as you could lose everything.
This is a piece of advice that has been around since 1605 so it was around well before New Zealand had it’s first bank which was in Petone in 1840.
But with banking a lot of Kiwis will ignore this advice and have all of their banking, lending and even insurance and investments with the same bank.
Why is this?
Incentive To Keep Everything With One Bank
The banks want to have all your banking as it means they can make more money and also it gives them more control, but that doesn’t mean it is a good idea.
They will often give you incentives to bring all of your business to the bank. These incentives might seem attractive to you and make the decision easier; however you can be sure that the bank has considered things and calculated the cost to the bank and decided that it is worth giving that incentive to get your business.
They are not doing it to be “nice” but are giving incentives so they can make more money over the longer term.
The banks also know that they have less risk and more control when they have all of your banking.
If you have more than one property then the banks will link the properties together so has the ultimate say you need the banks permission to sell one, and this way it is the bank not you that has the ultimate say in what happens to the proceeds from the sale.
If you are a business owner then the bank will want to have both your business banking and the mortgage on your home. The bank knows that there is more risk for self employed people and that’s why the banks charge higher fees for business banking and higher interest rates for business lending, but they love to reduce the risk by having security over your home too. In many cases the business loan that you might think you have and are being charged for is really no more than a home loan in disguise. The bank have used your home as security but still get away with charging you the higher interest rates because they have called ot a business loan.
While your banker may give you reasons to put all your business with the one bank, you need to consider what is best for you and it is almost certainly not putting all your eggs in one basket.
Any good mortgage adviser will suggest splitting lending across banks and not having your business banking with the same bank that your mortgage is with.
Banks Make It Hard To Split Up Your Lending
We know that the banks want all of your business, we know the main reasons why they want to lock everything up together and also why they will try and keep all of your banking too.
If you have thought about the reasons that the banks have then you will now also know that it’s not right to have all of your banking with the one bank.
The preference should be to have;
- Your mortgage on your home with a separate bank or lender from your main personal and business banking
- Never having your home and any rental properties with the same bank
- Not having your main business banking with the same bank as your mortgage
- Plus, banks are typically not good at insurances and investments (including KiwiSaver) so why would you do these with the bank?
If you have everything tied up with the same bank then they do make it hard to split up your lending in particular, and they will probably give you some lame reasons why you should keep everything with the bank. This means that some people will give up and leave things as they are and that’s exactly what the bank wants.
You should still look at changing your banking and splitting lending across banks.
Our Advisers Can Help You Find Better Options
As mortgage advisers we have seen the problems created from having your banking and lending with the same bank and linked together.
We’ve seen people forced by the banks to sell properties at the wrong times, we’ve seen banks demand the proceeds from property sales, we’ve seen people unable to sell because the banks don’t allow it and we have seen banks take money from one bank account to fund a shortfall elsewhere.
The actions that banks can take often cause chaos for the people involved, but the bank is legally able to do these things because the documents that you have signed allow it. The bankers may say that they are looking after you, but the fact is that the banks will assign the task to a department that is only interested in looking after the bank.
Moving a bank account, your insurances and investments (including KiwiSaver) are normally quite easy, but sometimes it’s not so easy splitting lending across banks.
Our advisers are trained in the process of doing this and can help move things away from a single bank.
Contact one of our mortgage advisers who can help you.
Source: North West Mortgages