What’s your appetite?
We all have an appetite for financial risk. Some of us take a reserved, conservative approach to monetary decisions, while others have a more adventurous inclination for higher risk, hoping for different outcomes. Neither is right or wrong. Both have their pro’s and cons; it is very much governed by your comfort level individually. “What one bank won’t do, there is almost certainly another that will. Choice is a powerful thing for consumers of credit today.” We all have an appetite for financial risk. Some of us take a reserved, conservative approach to monetary decisions, while others have a more adventurous inclination for higher risk, hoping for different outcomes. Neither is right or wrong. Both have their pro’s and cons; it is very much governed by your comfort level individually. Banks are no different. Certainly, since the 2007/08 banks have adopted very noticeable risk appetites. Gone are the days (long, long, gone and most likely never coming back) where all banks offered similar products, backed with similar policies – with obvious and predictable risk appetites. But the GFC happened and that caused a shift in the way almost every bank assesses their appetite for risk. Each bank has a different method of calculating risk, typically governed by internal policy, but always guided by government regulation. The similarities between banks differ greatly now, where once was almost a given with a particular lender, may now not even be considered. And it’s a dynamic process – lenders are continually assessing and re-calibrating their risk throughout the year, making it difficult for the consumer to follow. Consider: A 50-year-old couple who have been with the same lending institution since taking out their first mortgage, upgrading as their family expanded and changed through the years. They have retained all of their banking requirements with that one single bank. Their loan is always paid on time – in fact; they were well ahead with their repayments – there were never issues. They are at the stage where their current property required essential upgrades and maintenance in the kitchen and bathroom; something simple that will extend the life of the property. But now the pair find that the banks risk appetite has changed, and they are no longer interested in lending against properties in the couples postcode. The risk evaluation of that location has changed, in the banks view, and this affects the couple’s plans. Postcode restrictions are just one example of how lenders shift their risk parameters. How that risk is assessed is a profoundly entrenched internal process within each bank, making it very difficult for clients to stay informed on changes. Usually, there are numerous changes at any given time, making it a complicated and sometimes frustrating situation. But all is not lost. What one bank won’t do, there is almost certainly another that will. Choice is a powerful thing for consumers of credit today. The key lies in finding a lender that matches your exact needs and requirements. Understanding how to navigate through the marshes of bank policy, risk adversity and financial priorities, may not be everyone’s cup of tea, but it is our passion. As nerdy as it sounds, we love that stuff: sifting through policies, looking for the right pieces to complete the puzzle; we geek out on that. Banks can change like the tide, knowing what the means for you, can save you a lot of time and frustration.