NEWS Banks’ meagre rate cuts ‘disappointing’, Flavell says Franchise CEO says lenders have chosen profits over customer outcomes P8
ANALYSIS Battle of the generations Does Gen Y have it harder than previous generations? P12
BEST PRACTICE Amp up your impact How brokers can increase their influence P16
AUGUST 2016 ISSUE 13.16
INDUSTRY SPOTLIGHT Boosting business
Commercial lending success stories P18
TECH FOCUS Fintechs prove themselves to banks
Survey reveals banks keen to partner with disruptors P22
GARRY DRISCOLL Boutique Outsource Solutions’ CEO on why back-office outsourcing is a smart move for brokerages P10
MARKET WRAP Mixed views on housing market Aussies’ contrasting opinions on the state of housing P26
BORROWER SNAPSHOT 2
ASSOCIATIONS MFAA begins search for new CEO P4
ASIC commends brokers
Industry figure baulks at banks’ meagre rate cuts P8
v $250,000 - $699,999 w FIRST HOME BUYERS MOTIVATED BY AFFORDABILITY, HOUSE VALUE GROWTH
Biggest priority for first home buyers when buying a house:
Editor Madelin Tomelty News Editor Julia Corderoy Journalist Maya Breen Production Editor Roslyn Meredith
Distance to work
Distance to shops and attractions
Potential house value growth
Distance to family and friends
ART & PRODUCTION Design Manager Daniel Williams Designer Martin Cosme Traffic Coordinator Lou Gonzales
The most difficult task during the house-hunting process: Evaluating which properties present good value
had to make compromises to buy their first home
of those that had to compromise compromised on location
of those that had to compromise compromised on price
Account Manager Rajan Khatak Marketing and Communications Manager Lisa Narroway
CORPORATE Chief Executive Officer Mike Shipley Chief Operating Officer George Walmsley Managing Director Justin Kennedy Publisher Simon Kerslake
Human Resources Manager Julia Bookallil
Madelin Tomelty +61 2 8437 4792 Madelin.Tomelty@keymedia.com.au
tel: +61 2 8O11 4992 fax: +61 2 9439 4599 email@example.com
HOUSEHOLD DEBT CONCERNS DOUBLE 10%) during the first half of 2016. Jeff Oughton, ME’s consulting economist and report co-author, said there was a marked increase in households feeling vulnerable to income shocks associated with wage cuts, fewer hours worked and a lack of suitable jobs, as well as lower dwelling prices in some parts of Australia. “With a lack of cash savings or equity buffer in their home, there’s a marked increase in households expecting to be unable to service their debts, despite record low borrowing costs,” he said. As for the overall finding, ME’s overall Household Financial Comfort Index – a measure of households’ perceptions of their
Sales Manager Simon Kerslake
Chief Information Officer Colin Chan
Source: St.George Bank survey of 1,000 households
ME’s 10th biannual Household Financial Comfort Report has revealed that consumer confidence in the ability to manage debt over the next six to 12 months has doubled from approximately 5% over the past few years to 10% in the six months to June 2016. Single parents reported the highest levels of concern about their ability to meet minimum debt repayments over the next six to 12 months (19%), followed by couples with young children (15%) and young singles/couples (12%). Of particular concern is the rise in households drawing on their home equity to pay off debt (up four points to 11%) and to “make ends meet” (also up four points to
SALES & MARKETING
financial comfort − dropped by 4% to 5.37 out of 10 in the six months to June 2016. This result means that about 90% of Australian households reported low-to-mid financial comfort, with only 10% reporting high comfort. The result reverses the increase in comfort reported in December 2015, and is the fourth lowest financial comfort level since ME commenced the survey in late 2011. All 11 index components deteriorated, with the largest falls seen in net wealth, income, cash savings and investments, as well as households’ ability to handle shortterm income loss, and anticipated standard of living in retirement.
Simon Kerslake +61 2 8437 4786 firstname.lastname@example.org Rajan Khatak +61 2 8437 4772 email@example.com Key Media Pty Ltd Regional head office, Level 1O, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 www.keymedia.com Offices in Sydney, Auckland, Denver, London, Toronto, Manila. Singapore This magazine is printed on paper produced from 1OO% sustainable forestry, grown and managed specifically for the paper pulp industry Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss. Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008. The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.
ASSOCIATION HAPPENINGS 4
DATES TO WATCH
HUNT FOR THE MFAA’S NEW CEO BEGINS The MFAA has announced it has begun its search for its new CEO, with applications now open to MFAA employees, members and external candidates. De Jager Executive Search will review all applications and provide a shortlist to the board for evaluation. Once the shortlist has been determined, the board will initiate a comprehensive interview process. “We’re committed to investing time and careful consideration into this appointment, to ensure we identify the right person for the job,” said MFAA chairman Cynthia Grisbrook. Grisbrook added that the search for a new CEO would not overshadow the association’s involvement with ASIC in light of the review into broker remunerations. “Brokers can be assured that a close involvement with ASIC as part of this review remains a top priority for the MFAA.” The announcement comes shortly after the MFAA
released its updated five-year strategy following the departure of former CEO Siobhan Hayden. The strategy is built upon five pillars: advocacy and influence, profession enabler, people and culture, IT systems and technology, and broader industry issues. Technology will be at the forefront of the new strategy, however, with an aim “to take advantage of emerging trends”. The process to develop this strategy was “extensive”, according to the MFAA, and included feedback from all its member categories, particularly the extensive participation of mortgage and finance brokers. Chairman Grisbrook said it would promote and advance the broker proposition to consumers as well as external stakeholders, such as governments and regulators, and it would continue to demonstrate the commitment of MFAA professionals to maintain the highest standards of education and development.
A rundown of the next fortnight’s events
17 What: MFAA Darwin PD Afternoon Where: DoubleTree by Hilton Hotel Darwin Details: The Darwin PD afternoon will include discussions with Gary Downes (AFG) and Ken Sloane (Heritage Bank) and an industry update by the MFAA’s Wendy Robertson.
WHAT THEY SAID...
Damien Percy “State governments need to reduce their reliance on property taxes and their enthusiasm for growth boundaries, and local government needs to reduce the degree of difficulty in adding to housing stock – including the front-loading of infrastructure costs on the development of greenfield sites, and therefore first home buyers” P12
Cameron Kusher “It’s … likely that we’ll see yields compress further over the coming months. However, this will be dependent on growth in home values as well as the direction of rental rates … As a result, capital growth, which has slowed from its peak, will continue to be a much more important factor for property investors than rental returns” P27
John Manciameli “Once the [remuneration] spotlight on our industry has lifted, I would like to see an emphasis on attracting younger Australians into the industry and keeping them. Our industry is ageing and we need to attract new talent and find ways to keep them as the attrition rate is not acceptable” P30
18 What: MFAA Tasmanian PD Day Where: Best Western Hobart Details: The Tasmanian PD Day will feature a presentation by Peter Kennedy on growing your business, a residential market update by David Hanlon, and tips from Luke Knight on understanding the Chinese investment mindset.
18 What: MFAA: SOLD Where: Sharks Event Centre, Southport, Gold Coast Details: SOLD is a program for all brokers to engage with issues that can enhance their business performance. The two-hour session covers social responsibility; opportunities for women; lifestyle, wellbeing and mental health; and diversity and inclusion.
REGULATORY ROUNDUP 6
CANADA BRITISH COLUMBIA IMPLEMENTS HEFTY TAX LEVY FOR FOREIGN BUYERS Foreign buyers of property in British Columbia will now be faced with an additional 15% property transfer tax. The new levy, which went into effect on 2 August, has been introduced in a bid to rein in runaway housing costs in Vancouver, according to CTV News. British Columbia Premier Christy Clark and the state government have signalled for months that change was coming for the real estate industry, “tackling unscrupulous sales practises”, the report stated. It added that the decision to implement a new tax levy was influenced by recent housing data. The data indicates that foreign buyers spent more than $1bn on BC property in a five-week period starting 10 June, with 86% of that spending recorded in the Lower Mainland area. “There is evidence now that suggests very wealthy foreign buyers have raised the overall price of housing for people in BC,” Clark said. “If we are going to put British Columbians first, and that is what we are intending to do, we need to make sure we do everything we can to try and keep housing affordable. “Ultimately, the goal is to affect the demand by making sure it’s maybe a little tougher for foreign buyers to find their way into our market.” The additional tax means a foreign buyer will pay an additional $300,000 in tax on a $2m purchase. Commenting on this development on the Digital Finance Analytics blog online, Martin North referenced an SBS Dateline broadcast that examined the large-scale migration and investment of wealthy Chinese into Vancouver, “which has forced house prices to astronomical levels and left a swathe of empty homes”. “The Dateline segment followed a report presented to the City in March which found just under 11,000 empty homes in Vancouver, most of which are apartments or condos,” he said. “There have also been recent widespread reports of immigration fraud by rich Chinese, money laundering into Vancouver real estate, and other dodgy dealings by corrupt Chinese in Vancouver property.” Without the new tax levy, North stated, Vancouver would be at risk of becoming a resort town for wealthy foreigners, rather than a community. “Australian states should immediately raise their foreign buyer stamp duties to 15%,” he concluded.
APRA REAFFIRMS RISK WEIGHT OBJECTIVE APRA has announced it has reaffirmed its objective, announced in July 2015, to raise Australian residential mortgage risk weights applied by banks using internal models to an average of at least 25%. At the time of the July 2015 announcement, APRA also announced changes to the risk weight calculation used by authorised deposit-taking institutions (ADIs) accredited to use the internal ratings-based (IRB) approach to credit risk. These adjustments was implemented after the Financial System Inquiry recommended APRA narrow the difference between the two risk weight models in a bid to increase the resilience of IRB ADIs and the broader financial system. In addition to the risk weight changes, APRA also required IRB ADIs to make a range of other changes to their models as part of its routine supervisory processes, with a view to improving their comparability, reliability and risk sensitivity.
The regulator has now determined that the impact of these modelling changes when combined with the adjustment proposed in July 2015 would achieve an average risk weight that was well in excess of the 25% targeted by APRA. The watchdog has therefore advised the affected banks that it has recalibrated the adjustment originally advised to banks and in doing so has confirmed that its original objective of achieving an average risk weight for Australian residential mortgages of at least 25% remains unchanged. APRA added that this adjustment to mortgage risk weights remains an interim measure, pending the outcome of the deliberations of the Basel Committee on Banking Supervision to finalise reforms to the capital adequacy framework, and APRA’s subsequent consideration of how those reforms should be applied in Australia.
ASIC COMMENDS BROKERS ASIC has told the MFAA that the industry has done a commendable job in preparing brokers for its remuneration review. ASIC has issued requests for information and data to around 50 broker businesses, and ASIC senior manager of deposit takers, credit and insurers Michael Blyth has told the MFAA that the regulator was impressed with their attitude. “The feedback so far from my team is that the brokers who they spoke to were generally happy to participate in the review. The industry seems to have done a good job at preparing brokers for this review,” he said. ASIC contacted a range of broker businesses that it felt represented a mix, from the largest
businesses to some that were reasonably small. In respect of the smaller businesses, ASIC only issued requests to businesses that had settled at least $10m in residential mortgages in 2015. ASIC has reiterated to the MFAA that its review team is available to provide any assistance that brokers need to provide information requested. This is particularly the case for participating smaller broker businesses. ASIC’s review team expects to check in with those businesses early next week. ASIC said its requests to smaller businesses should not unnecessarily disrupt their daily operations.
AUSTRALIAN BANKS LIFT THEIR CAPITAL BASE
Banks in Australia have lifted their capital base in the past year from 11.7% to 13.5% on an international comparison basis as at December 2015 Capital adequacy rations of Basel QIS (June 2015) and major banks (Dec 2015)
28 26 24 22 20 18 16 14
16.0 14.8 13.5
CET1 Australia (headline)
Tier 1 Australia (Basel QIS)
Total capital Australia (comparison ratio) Source: APRA
LENDER UPDATE 8
FLAVELL: BANKS’ MEAGRE RATE CUTS ‘DISAPPOINTING’ Following the RBA’s decision to slash cash rates to a new record low of 1.5%, lenders continue to drop their interest rates. The Commonwealth Bank trailblazed the cash rate cut, reducing its standard variable rate mortgages by 0.13%, taking the rate for owner-occupiers to a record low of 5.22% for the bank. This was followed by the other three major banks, which also cut home loan rates. However, some industry figures have spoken out about their disappointment that few of the banks have passed on the rate cut in full. As at 8 August, Bank of Sydney, Virgin Money and Bank Australia were the only banks to pass on the full 0.25% cash rate cut. Bank of Sydney’s ‘Broker Special’ variable rate is now down to a historic low of 3.54%, while Virgin Money’s Reward Me variable home loan for owner-occupiers has been trimmed to 3.69%. P&N Bank, however, went a step further and announced that it would cut rates in excess of the RBA cut, passing on up to 26 basis points on one of its home loan products, while Bank Australia, Homestar Finance, Reduce Home Loans and Virgin Money have confirmed they will cut some products by the full 25 basis points. Reduce Home Loans currently has the lowest ongoing rate on the market, at 3.35%, according to RateCity. In response to the majority of banks refusing to pass on the whole 25 basis points cut to their customers, Mortgage Choice CEO John Flavell has publicly expressed his disappointment, hitting out at lenders who he says have chosen shareholder profits over customer outcomes. “… at a time when the economy could do with the lift that a cut to the cash rate would provide, it was deeply disappointing to hear some of the nation’s largest and most profitable lending institutions announce that only 10 or 13 of the 25 basis point reduction would be passed on to their mortgage customers. “It would be very easy to let this partial rate cut pass under a veil of rhetoric around the cost of wholesale funds, and requirements to hold increased amounts of capital against mortgages. “The reality is, however, if all lending institutions chose an equally profit-focused approach and held back this proportion of the 25 basis point cut, then this equates to something like $2bn dollars taken out of the pockets of Australian mortgage holders and placed on to the bottom line of institutions that are already generating tens of billions of dollars in profits every year.” “There is still a high degree of market volatility. Unemployment has edged slightly higher over the last month, consumer confidence is down, and housing affordability remains a critical issue for many. “Knowing this, I would like to see more of our lenders act in the interests of their customers,” Flavell said.
MYSTATE IN TALKS OVER LA TROBE ACQUISITION Tasmanian-based non-major lender MyState has confirmed it is in talks to acquire Melbourne-based specialist lender La Trobe Financial. In a statement released to the ASX, MyState said the board had “consistently stated its growth ambitions and its desire to drive value for shareholders through acquisition and industry consolidation.” MyState released the statement confirming the acquisition discussions following media speculation in the Australian Financial Review
that it was assessing the purchase of La Trobe. However, MyState affirmed that it was only in discussions at this point. “At this stage no decision has been reached and there is no certainty that any transaction will eventuate. MyState will continue to keep the market fully informed in compliance with its continuous disclosure obligations.” La Trobe’s website reports revenue of $148m in fiscal 2015, up from $111m a year earlier. The specialist lender has $2.1bn in funds under management.
SUNCORP’S NET PROFIT DOWN 8.4%
Suncorp Bank home lending assets $44.3bn Portfolio by borrower type
Portfolio by geography
8% 3% Western Australia
NSW & ACT
Portfolio by channel
COVER STORY AN EASY DECISION
If you’re not outsourcing back-office staff in your business yet, now is the time to do so, according to Boutique Outsource Solutions CEO Garry Driscoll. He tells Australian Broker why he started a business in Manila dedicated to just that, and why outsourcing is a no-brainer for brokerages
OUTSOURCING is changing the face of how business is done across all industries, says Garry Driscoll. It was this foresight that led to Driscoll venturing to the Philippines in 2010 to look at the local market and assess the possibility of setting up some back-office staff in Manila. As a finance industry veteran, Driscoll had experienced first-hand the burden of time-consuming business paperwork and administration. He had seen how it hindered finance professionals’ capacity to focus on other,
BOS’s business model is unique. The company ‘hosts’ staff members in Manila, providing them with office space, desks, PCs, dual screens, webcams, headsets, internet connections, systems for online attendance reporting, payroll, government reporting and attendance monitoring, as well as general supervision, security and support for staff wellbeing. The staff become a part of their Australian client’s team and culture, and BOS simply becomes an “umbrella culture over the top that supports the client’s culture”, Driscoll says.
“The real bonus is the ability to increase their service levels or to expand their business in a way that they could never achieve onshore. It allows the business to have their senior staff focus on the business and their clients rather than waste most of their time on process and administration matters” crucial parts of the business, and knew there was a better way to run a business. “The cost, timewise, of compliance is turning a lot of brokers and their staff into administrators and processors, thereby taking them away from their main roles, which should be assisting their clients to get a home loan and building their business,” he says. “By outsourcing as many processes as possible, this frees up time to focus on the customer, not the paperwork.” And herein lies the premise of Boutique Outsource Solutions (BOS) in Manila, Driscoll’s brainchild and home to over 70 staff members – a figure that Driscoll is confident will exceed 100 by the year’s end.
BOS specialises in the financial services industry, and its clients include mortgage managers, brokers, buyers’ agents, a large asset management group, financial planners and a real estate group. However, the tasks that are delegated to BOS don’t need to be finance-specific. The outsourcing model works across any type of business and role; tasks such as bookkeeping and accounting, making travel arrangements, booking meetings, and market research and post-settlement CRM activities are all regularly outsourced to BOS. BOS has only been in operation since June 2015, and yet its growth is indicative of the demand for outsourced staff from businesses in Australia and around the world. Australian companies are the
second-largest employers of outsourced Filipino staff behind the US, and most of the major Australian companies, including the banks, have staff in the Philippines. According to Driscoll, in 2010 there were approximately 550,000 people employed in the business process outsourcing industry in the Philippines. The latest figures show that the sector has seen huge growth in the last six years and there are now over 1.75 million people employed as outsourced staff. A vital history Setting up an outsourcing business in the Philippines was a big move for Driscoll. Until September 2014 he had been working for eight years as the CEO of Mortgage Ezy in Sydney. His prior history in finance was impressive and extensive – he is a well-known industry figure, having worked in a number of senior executive positions at leading non-bank funders and managers, including Homeloans Ltd and Firstmac. He was also chairman of the National Mortgage Management Committee and a board member of the MFAA from 2007 until 2012. Clearly, his reputation precedes him, and founding BOS marked a sharp turn in his career – a new direction. But Driscoll was confident he was on to something. “It was a big decision to make, but I believed that we could provide something different from the larger companies who offered a factorytype environment where people were simply commodities. We wanted to have something more personal, intimate and flexible, hence the name Boutique Outsource Solutions.” The solutions these offshore staff members provide to their clients are easily measurable, and mortgage companies have been quick to recognise this. They make up a substantial amount of BOS’s clients. “While the most obvious benefit is cost … people soon realise that it is not the most important benefit. The real bonus is the ability to increase their service levels or to expand their business in a way that they could never achieve onshore. It allows the business to have their senior staff focus on the business and their clients rather than waste most of their time on process and administration matters. It allows businesses to add staff quickly without the headache of finding staff, getting additional space, desks, computers, phones, etc. The list goes on and on,” he says. “The biggest complaint we hear from brokers is that compliance and the associated paperwork is killing them, and they don’t have the time to get out and generate new business. The cost of employing someone is too expensive, especially initially with the associated set-up costs, therefore having someone working exclusively for them offshore is a perfect solution. It is equally effective for a small broker operation all the way through to the largest groups, and it is totally scalable.” The bottom line Alex Lambros from Strategic Group, who began outsourcing tasks to BOS in November 2015, couldn’t agree more. “Our internal staff were meant to be client-focused but were inundated with paperwork. I needed to
Garry Driscoll, CEO, Boutique Outsource Solutions
reduce their paperwork/administration so they could better focus on the client relationships,” Lambros says. Through BOS, he outsources data entry and loan lodgements specifically. Shakira Snowden similarly recruited her first staff member to work for National Mortgage Company (NMC) under a hosting arrangement with BOS, and has been thrilled with the positive effects on the business. “The benefits around scalability and reduction in salary costs are immediately obvious. BOS allows us to focus on our strengths – processing mortgages and servicing our customers – without having to become experts in Philippines human resources and labour law,” Snowden says, adding that it goes far beyond just the bottom line. “NMC’s staff in the Philippines have, over time, integrated into the broader culture of the business – something which has always been so important to NMC’s continued success,” she says, speaking to the success of Driscoll’s business model, with its focus on the human element. “I don’t feel that what we do at NMC is ‘outsourcing’, but rather building an
international team, and I think this is an important differentiator,” Snowden explains. Bold benefits The staff at BOS are all university educated, have strong English skills, and love the idea of working for Australian companies, according to Snowden. One obvious reason for this is the convenient time difference (Manila is in the same time zone as Perth), which allows Filipinos to work normal hours rather than the dreaded graveyard shift required of them when working for American companies. In addition, the career opportunities offered by Australian finance companies are far superior. For Lambros, his company’s experience is a testament to the success of the outsourcing model not only from a business perspective but also from a human resources viewpoint. “Local staff are happier,” he says. “Less of the data entry makes them happier and [allows them] to flow through the client process faster. Client satisfaction is higher, [and] applications move through the system faster as there is no bottleneck at lodgement stage.”
With testimonials like this, it’s easy see why Driscoll believes the decision to outsource is a simple one for companies to make. Snowden thinks businesses that take steps like this are the same businesses that are willing to think outside the box, innovate and reap the rewards as a result. “To allow us to continue to provide excellent service in an increasingly competitive industry, we realised that we needed to find a more scalable means of remaining relevant and strong. By offshoring roles to the Philippines, we gained the capacity to innovate – to create new technologies and platforms to drive efficiency and higher levels of customer service,” she says. “Through constant innovation and developments like offshoring, the mortgage industry is being driven to discover better ways of doing business. There is no room for complacency, and those who embrace new ways of doing business will be successful … It’s a really exciting time to be working in the mortgage industry if you are forward-thinking, always looking to improve the customer experience, and always willing to innovate.”
BATTLE OF THE GENERATIONS Australian Broker investigates the dwindling number of young first home buyers and whether Generation Y do, in fact, have it harder than any generation before them
GENERATION Y – or “Generation Selfish” – only have themselves to blame for their inability to purchase their first home. This was a comment made by Malcolm Gunning, the head of Sydney real estate network Gunning. Addressing the historically low levels of home ownership, Gunning stated that Generation Y were at fault for sabotaging their own chance of getting on to the property ladder. “More and more we are seeing a victim mentality associated with the high cost of property, yet this ‘Generation Selfish’ sees widescreen TVs, designer clothes, international holidays and eating out as everyday essentials. They simply won’t do what is
necessary to cut their lifestyle in order to save a deposit,” he said. “They also aren’t prepared to invest in a stepping-stone property, in a less desirable location; they want the Surry Hills pad right now, and won’t modify their expectations.” First home ownership is dropping, and it is dropping to alarming levels. The latest figures from the ABS reveal that the proportion of first home buyers to owner-occupiers is at its lowest in more than a decade. But while the level of first home ownership is not up for argument, there has been plenty of controversial debate around the idea that this
is because the current generation of first home buyers, Generation Y, have it ‘tougher’ than their baby boomer parents. Depending on who you speak to, Generation Y faces an uphill battle of skyrocketing house prices, a robust investor market, and sluggish wage growth; or they face the same struggles every generation before them faced as first home buyers – it’s never easy to purchase your first home. House prices may have risen, but interest rates are also at record lows. And Gunning certainly isn’t alone in his hard opinion, suggesting Generation Y first home buyers aren’t as savvy as their parents. This rhetoric is
PROPORTION OF OWNER-OCCUPIER HOUSEHOLDS, BY STATE 76 74 72 70 %
68 66 64 62 60
2003 New South Wales Victoria
2007 Queensland South Australia
even coming from Australia’s politicians. Former treasurer Joe Hockey’s advice to first home buyers was to “get a good job that pays good money”, he told a media conference in Sydney last year. However, the generational debate may now be settled, with a new report offering the ultimate checkmate. The latest edition of the Household, Income and Labour Dynamics in Australia (HILDA) report was released this month and its data tells a different story – that Generation Y do in fact have it tougher than their baby boomer parents. The end of the Great Australian Dream? The comprehensive HILDA Survey is a household-based panel study which began in 2001 and has so far surveyed over 25,000 individuals and over 9,500 households. The latest report indicates that home ownership in Australia is indeed declining, but is declining not just for first home buyers but for everyone. All but one age group experienced falls in home ownership, and across all states (excluding Tasmania, the ACT and the NT due to small sample sizes in these jurisdictions). In 2001 when the survey began, 68.8% of all Australian households were owneroccupied, but by 2014 this had fallen to 64.9% of households. However, what the report more tellingly reveals is that the decline in home ownership has become significantly concentrated on those aged under 55, and in particular those aged under 45. Home ownership among persons aged 25–34 declined from 38.7% in 2002 to 29.2% in 2014, with much of the decline occurring between 2010 and 2014. Not
Western Australia Source: HILDA Survey
surprisingly, this period corresponds with the current house price growth cycle, which has seen Sydney house prices climb 59% and Melbourne house prices 40%. Among persons aged 35–44, home ownership declined from 63.2% to 52.4% from 2002 to 2014, and among persons aged 45–54, it declined from 75.6% to 67.4%. The only age group not to experience a fall in home ownership was those aged 65 years and over. However, they didn’t experience an increase either. Over the 12-year time period, there was essentially no change in home ownership within this age group. The Great Australian Dream may be more of a dream than ever before, but it appears to have become even further out of reach for the younger generation of home buyers. Where did the dream go? So, why is home ownership, particularly for Generation Y, in trouble? Yes, house prices are in a growth cycle and the soaring cost of real estate is dominating headlines, but the HILDA report reveals that the cost of entry-level housing, in particular, is more expensive than ever. According to the report, the 10th percentile – or the least expensive homes on the market – increased in value by 108% between 2001 and 2014, while the 90th percentile increased by less than half of that, at 47%. The median home value increased by 76.5%. The inequality in home prices is even more evident when you compare the ratio of the 90th percentile to the 10th percentile. In 2001, the ratio of the 90th percentile to the 10th percentile was 5.01, meaning the most expensive houses were more than five times
ANALYSIS the value of an entry-level property. In 2014 this ratio had declined to 3.57. “An implication of this finding is that housing at the ‘affordable’ end of the distribution appears to have become relatively less affordable between 2001 and 2014,” the report stated. And at the same time as entry-level house prices are rising, household incomes are dropping. Between 2001 and 2014, the median household income increased by $18,027. However, the increase was seen mainly during the 2003 to 2009 period; between 2009 and 2014, the median household income fell slightly. Unsurprisingly, this combination of high house prices and falling incomes has translated into disappointing home equity – the difference between the value of the home and debt owed on the home. While you would expect the mean of home equity to be lower than the mean of home value, the HILDA report warns that the growth in home equity is “substantially lower” than the growth in home values. Mean home equity grew by just 52.7%, whereas the mean home value grew by 65.3%. And which age group is suffering the most? Those aged 25–34 years: Generation Y. This demographic was the only age group to see a decline in median home equity. Between 2002 and 2014, median home equity for Generation Y declined by 7.9%, indicating that their debt has grown significantly more than the value of their homes. The next closest group was those aged 35–44, who saw a 10.9% increase in median home equity. Those aged over 55 years saw an average increase of 45.9% in home equity, despite higher house prices.
may see less rental demand, which may impact on an investor’s ability to service the debt on their investment property,” Singh told Australian Broker. Percy added that housing stock would also get older, “meaning that newer, more energy- and space-efficient housing is less likely to be built in its place”.
What does this mean? Declining home ownership among our younger generations is not good news for anybody. Damien Percy, Adelaide Bank’s general manager of third party mortgages, told Australian Broker there were several aspects to this problem that would ultimately impact on the Australian economy. “Firstly, pretty well all the modelling that has been done on paving the way to a self-funded retirement assumes that the retiree owns their own home. Secondly, homeowners spend more on goods and services, bettering their homes and gardens and stimulating economic activity. “... They are also building up equity in their home, which potentially they can borrow against to fund additional property purchases such as an investment property or shares. Australians have traditionally viewed home ownership as the bedrock of financial security.” Taj Singh, director and co-founder of First Home Buyers Australia, an organisation founded to support and educate first home buyers, said the declining rates of home ownership among younger generations would also affect property investors. And with the HILDA report showing that residential property investment is concentrated among those aged 45–64 years who also earn in the top two quintiles, baby boomers should take note. “As more and more people are forced to rent, it will drive competition in the rental market in the more popular areas; renters usually like to rent where it is convenient for their work or lifestyle. “Consequently, the more unpopular areas
What now? Addressing the situation will take a comprehensive, multipronged approach, starting with the government, according to Percy. “First and foremost, governments at all levels should stop making it worse: the federal government should review tax policy, particularly the interaction of negative gearing and capital gains discounts, that encourages speculation in existing housing stock,” he said. “State governments need to reduce their reliance on property taxes and their enthusiasm for growth boundaries, and local government needs to reduce the degree of difficulty in adding to housing stock – including the front-loading of infrastructure costs on the development of greenfield sites, and therefore first home buyers.” On top of reviewing tax policies and reliance, Percy said the government also needed to encourage more employment opportunities in regional areas and in cities like Canberra and Adelaide. “We primarily have a supply problem on the East Coast, and the reasons for this vary in each capital city. We simply haven’t built enough houses over the past decade or so. The increased demand is making it very tough for first home buyers, and taking the population pressure off the big cities will help Gen Y. But we should also make it easier for older Australians – who were late to the compulsory superannuation regime with low super balances – to move to a regional areas.” According to Singh, addressing the situation
HOME OWNERSHIP RATES BY AGE GROUP 85
25 25-34 2002
65 and over Source: HILDA Survey
requires first home buyers to receive a significant leg-up when it comes to tax concessions. Firstly, he said, interest deductibility on existing dwelling purchases needs to be reduced from 100% deductible to 50% deductible, while retaining 100% deductibility on new dwelling purchases. Secondly, a CGT discount system tiered by scale also needs to be introduced so investors don’t receive a full 50% discount until after 36 months. In addition, Singh argues that first home buyers should also be provided with a 50% stamp duty discount on existing dwellings and 100% discount on new dwellings. On top of tax concessions, Singh is petitioning for first home savers accounts to be reintroduced, “with enhanced features such as an ability to salary sacrifice pre-tax wages, no tax on investment earnings, a reduced three-year minimum investment rule, and an ability to invest in assets other than cash, such as managed funds”. But when it comes to the actual home loan, Singh said lenders and mortgage brokers also play an important role in addressing housing affordability for first home buyers. “By offering flexibility to first home buyers, [lenders] can help ease the affordability crisis by offering honeymoon periods – for interest rates or repayments – or by offering loans with interest free portions. “Lenders mortgage insurance is also quite a significant cost to a first home buyer ... Some lenders could look at reducing this burden where first home buyers have saved close enough to 20% of the home value.” Mortgage brokers can play a crucial role, said Singh, due to their independence and access to a range of bank and non-bank lenders. “Mortgage brokers can also determine borrowing power and eligibility for a home loan, which allows first home buyers to determine which region or suburb would be within their budget,” he concluded.
BEST PRACTICE AMP UP YOUR IMPACT James McCracken from The Successful Adviser discusses the attitude shift that can help brokers increase their impact, influence and settlement volumes
WITH LOAN APPLICATION volumes healthy
Educate your clients
and consumers hungry to score a great deal, there’s no doubt opportunities are everywhere. However, it seems the Pareto Principle (80:20 rule) still very much applies to broker performance. Some brokers quite literally settle five to 10 times more than their peers despite working comparable hours. So it begs the question: what are these brokers doing differently to attract this kind of volume? Part of the answer has to do with these brokers building their brand and reputation for being a ‘person of influence’. This means they not only get to write more loans, but they also get to positively impact on more clients for the better. I call it ‘being pre-eminent’. This means becoming the pre-eminent adviser to your current and future clients; the person your clients turn to first for all matters finance. Why does pre-eminence matter? Well, think about this. Who is the world’s pre-eminent authority on animal documentaries? David Attenborough, of course. But it’s not that he knows more about animals than other professionals in the field – he probably doesn’t. In fact, he’s not an expert in any area of animal studies per se, yet he’s built a brand and reputation that precedes him. Experts know something. An authority or pre-eminent person is known for a particular area of expertise. Let’s look at some simple strategies being used right now by pre-eminent brokers across the country that enable them to avoid the roller-coaster ride of business and maintain consistency in settlement volumes, month after month.
With most brokers averaging healthy loan application conversion rates of 90% plus for people who qualify, there’s little question that you’ll likely win most deals you set appointments for. Winning the deal, however, doesn’t mean the client will ‘fly the flag’ and tell their friends and family about you. One thing a handful of elite brokers do to win client advocacy is to whiteboard the scenario with their client. They put all the details up there so they, and more importantly their client, can see the full picture. They then explain to the client what they are recommending and why, and they ask their client to take a photograph of the board. When clients are educated, they feel empowered, they feel more confident, and they’re more likely to trust you. Not only that but they are also far more likely to actively ‘sell you’ to their friends and family because of the quality of the experience they’ve had. When you think long-term about the total lifetime value of a client, it becomes a no-brainer to know that a bit more education can turn a person into a raving fan.
Become a hub Clearly it is common sense to build your professional network with multiple people in complementary services. There are several reasons why you would want to do this. Firstly and obviously, if you identify a service your client requires, it enhances your value proposition when you can introduce clients to members of your network – in addition to which, some people say the best way to get a referral is to first give one. It reinforces to members of your network that
you value their skill and relationship and you want to reward them with an introduction. This in turn can enhance the potential for them to refer business back – though it may not happen as often as you expect if you don’t use an effective referral structure. Being a ‘hub’ is like being the go-to person. It’s not a natural reputation that mortgage brokers have built over the years, though it is a reputation that is worth striving to build. Even if your clients call you for advice on who they should speak to, it validates that they appreciate and recognise your opinion, and with the marketplace being so competitive, this reputation must not be underestimated.
Establish expectations Before jumping into the nuts and bolts of your meeting with a client, take a moment to firstly ask them: “Mr and Mrs Smith, just before we get started, can you tell me what would need to happen for you to have a really great experience in terms of the work we do together?” The reason for asking this question is that it makes your client feel important and positions you as completely focused on wanting to understand them. Given there’s not a person alive who doesn’t like to be made to feel important, why not start off your interview and relationship with the client this way. Building your influence and impact isn’t just confined to some cool sales tricks and persuasive words. The more you become known as pre-eminent among your clients and your networks, the more easily business will find you so you can write more loans, help more people, and run a great business.
INDUSTRY SPOTLIGHT BOOSTING BUSINESS Four commercial finance heavyweights reveal situations that required a savvy product solution, and explain how the commercial market is ripe with opportunity for brokers THINKTANK COMMERCIAL PROPERTY FINANCE The scenario A client who operated in excess of 12 affiliated companies needed help with the purchase of a commercial property where he planned to house some of his business operations. Timing was an issue, with the 2016 financial statements and tax returns not yet completed across all the entities.
The solution While the loan requested in the first instance was a Quick Doc, the circumstances were more suited to gearing at a 70% LVR, so Thinktank was able to offer a Mid Doc solution in its place. Through self-certification of consolidated income, the group’s profitability was confirmed with the support of two recent BAS statements from the two principal trading entities. The client was especially pleased that no further documentation or guarantees were required from any of the other associated entities, which would have been difficult to avoid as a Full Doc. We were able to offer a loan term of 25 years with an initial interest-only period of three years before a no-fee conversion to principal and interest over the balance of the term. Whilst the interests rate on our Mid and Quick Doc loans are slightly higher than our standard Full Doc rates, our clients retain the ability to convert to a Full Doc loan at any time at no cost if they at any time choose to provide us with finalised financial statements and tax returns. Our Mid Doc and Quick Doc products offer simpler solutions up to $2m, and are especially popular where time constraints are in play or clients simply don’t want to go to the hassle of providing financial statements and tax returns across a number of entities. For a simple and time-effective approach to more complicated commercial transactions for purchase, refinance or equity release, our Mid Doc and Quick Doc lending solutions are ideal.
Peter Vala, head of sales and distribution, Thinktank
The takeaway No doubt many brokers have found themselves in a similar situation. Lots of clients don’t fit the rigid lending criteria of traditional lenders, so brokers have to find a more flexible solution. At a time when brokers are looking to diversify their businesses and grow new revenue streams, being able to satisfy both prime and custom clients is crucial. The most important thing is to engage with a free-thinking specialty lender early on so the client can get an optimal solution quickly.
“Alternate verification doesn’t mean credit-impaired or low-quality lending. It still involves solid, sensible lending, but with the client getting the result they want faster and with less associated paperwork”
Thinktank Mid Doc Loan Max LVR
and loan size $2m
Self-certification plus one of: 2x BAS statements, or 6 months’ bank statements, or Accountant’s letter ABN held for minimum 2 years
Thinktank Quick Doc Loan Max LVR
and loan size $2m
Self-certification only ABN held for minimum 2 years
LA TROBE FINANCIAL The scenario A self-employed applicant had been operating their mechanical repair business from premises they had leased for the past five years. The landlord indicated his intention to sell the property and the applicant’s accountant recommended that they purchase the property through their SMSF, taking advantage of the tax benefits this can create. The purchase price was $550,000, and the applicant was looking to raise 70% of the purchase price to complete the transaction. However, upon completion of the transaction the liquid assets remaining in the super fund would total just $30,000 – below the minimum threshold required by some lenders.
The solution As La Trobe Financial does not have a minimum liquidity requirement for our SMSF loan product, we were able to approve a loan at 70% LVR, allowing the applicant to complete the purchase and secure their business premises.
The takeaway The SMSF lending space has had to contend with much speculation and a changing regulatory environment recently, both of which have created uncertainty about the future viability of this attractive product. A number of lenders have withdrawn from the SMSF space entirely, which in part can relate to the products’ ‘investment’ status, causing issues for ADIs due to APRA’s speed-limiting of investment lending growth being capped at 10%, to which SMSF lending clearly contributes. SMSF loans present brokers with a fantastic opportunity to expand their business capabilities and referral networks. With close to 3,000 SMSFs being established each month in Australia, there is, and will continue to be, plenty of opportunity in this space. A significant proportion of a broker’s current deal flow will be replaced by SMSF structures over time, particularly in the commercial space, as SMEs look to acquire property for their businesses in SMSFs, taking advantage of the significant tax benefits that can be achieved. In addition, borrowers will increasingly look to the residential investment property market as Australia’s ageing population gears up for their retirement that they can see on the horizon. Brokers are likely to have many self-employed clients on their database, and we would suggest drilling into this data to identify clients that do not currently own/hold their business premises within their SMSF. It is a good idea to recommend that their clients speak to their accountant as to whether owning a commercial premises via their SMSF is a good strategy for them. This proactive prospecting not only leads to more immediate business but demonstrates to clients that you are looking out for them. We have engineered our SMSF loan product to make it is as user-friendly as possible. The application form and documentation requirements for an SMSF loan are the same as for our regular loan products; the only difference with the SMSF loan is that we require details of the superannuation fund, such as size and regular contributions, and copies of the trust deeds for both the Bare Trust and the SMSF Trust. Brokers can assist their clients by ensuring all documents are available for submission, the structure of the SMSF and related trusts is correct, and the timing of set-up and execution of contracts has been correctly followed.
“A significant proportion of a broker’s current deal flow will be replaced by SMSF structures over time, particularly in the commercial space, as SMEs look to acquire property for their businesses in SMSFs, taking advantage of the significant tax benefits that can be achieved”
Cory Bannister, VP chief lending officer, La Trobe Financial
SMSF COMMERCIAL SPECIALIST LENDING PRODUCT
and loan size up to $1m
loan size up to $1.5m
Verification required 80%
SMSF contribution statement
Income deemed at 3.9%
INDUSTRY SPOTLIGHT ANZ COMMERCIAL FINANCE
The scenario ABC Manufacturing is a medium-sized business that had been operating for five years and had been quite successful during this time. The owners wanted to grow their business over the following three to five years, but to expand their business and support this growth they needed additional funds. As part of the expansion plans, they needed a financing solution that would allow them to purchase premises, purchase equipment, have access to working capital, and execute acquisitions. They estimated they would initially need $4m to fund the purchase of new premises and equipment, as well an overdraft to help manage the associated day-to-day expenses of the new premises. Once the new premises were up and running, the business would look to pay down their debt and reduce their exposure to interest rate movements until future growth opportunities arose.
The solution ANZ offered a solution to their client in the form of an ANZ Tailored Commercial Facility (TCF). The TCF gives a client the ability to manage the potential impact of interest rate risk on their business and cash flow, and allows different types of loans and an optional overdraft under the one facility. This was ideal for the client’s needs, as it provided them with certainty but also flexibility on their loans. With the TCF, the clients structured the Commercial Facility to include a $100k overdraft for the day-to-day business expenses, a $1.9m variable loan for equipment purchases, and a $2m fixed loan for commercial property purchases. This allowed them to pay off their variable loan to reduce the interest expense, whilst giving them the option to draw a new loan within the set term of the facility, with the available amount remaining under the limit later on, to support further growth opportunities. The customer pays a commitment fee on the full limit amount. ABC Manufacturing also had the option to restructure the variable loan into a fixed, capped or range loan product in case they had concerns about interest rate movements. All of this was achieved under the existing TCF arrangement.
The takeaway The ANZ TCF provides customers with an overall limit for a specified term. Customers can then draw upon several sub-loan accounts to take advantage of favourable market conditions. By allowing the customer to add or change the loan types during the life of the facility, they can enter into arrangements that can protect them when interest rates increase, and benefit them when rates fall. This is a big selling point for brokers, whose clients may be reluctant to commit to a fixed product during the loan term. For example, if a customer wants to take advantage of low variable rates, they can set up a Variable Rate Loan initially, and then consider fixing in six or 12 months. TCF CAP can be structured to suit the client’s risk appetite, for example, with 50% capped and 50% fixed. The loans can also easily be restructured without credit approval and on the same day, if done within the existing approved limit and term, which is also ideal for brokers’ time-poor customers who are seeking fast solutions. In addition to flexible loan types, the TCF gives businesses the option of an overdraft to help with business expenses, which still remain all under the one facility, streamlining all debts. Each sub-loan within the facility can also be paid at a different frequency. Interest and principal repayment frequency options on a variable loan can be anywhere from one to six months, and for fixed loans payments can be made annually.
Cosi De Angelis, head of commercial broker, ANZ
ANZ TAILORED BUSINESS FACILITY
Total business lending of the customer needs to be
million or more
Secured by Residential, rural or commercial or property
Letter of charge over term deposit
The scenario A client who owned multiple trucks for his transport business found himself one truck short after it became no longer roadworthy. This was costing him a lot of money in tracking jobs that he couldn’t take on, and in the driver’s salary, which he still had to pay, so he wanted to replace the vehicle as quickly as possible. He had found that funding the new truck through his own bank by refinancing his house was proving to be a long and laborious process, so he was seeking an alternative solution.
The solution The client’s mortgage broker suggested FAST’s new white label asset finance product, FAST Xpress, as a solution. Designed specifically for self-employed borrowers wanting to finance cars and commercial vehicles, the product’s competitive rate and quick approval process was ideal for the client. The self-declared verification meant that the client’s 10-year business history and the fact that he owned his home was all the broker needed to get the loan process underway. The broker was able to lodge the loan electronically through DriveOnline, have it immediately conditionally approved, and then fund the truck payment within 24 hours.
The takeaway This new asset finance product is the ideal tool for brokers to use, thanks to the rapid and seamless loan approval process. The only requirements for loan approval are for the borrower to have had an ABN for a minimum of two years, and for them to own a property. They can borrow up to $250,000 if they are an existing Westpac customer, or $150,000 if they are new-to-bank. Perfect for time-poor borrowers, the loan can be approved almost immediately due to the self-declared verification, and the competitive pricing makes it even more appealing. FAST brokers can quote and submit Xpress applications online, generate documents for equipment finance deals, and settle deals, all on the same day. In addition, the product is a bond-forging tool for brokers, who can use the product as an add-on offering for their existing mortgage holder clients, many of whom will look to buy a car soon after buying a house. The product offers brokers not only an additional income stream but also a way to tap into further opportunities through their home loan clients. Offering easy solutions like this one will ensure brokers’ clients become ‘sticky’, knowing they can go to their broker for many needs and not just their mortgage. The product can be seen as a method of retention, preventing brokers’ clients from going to another broker for their asset finance needs. Offering asset finance solutions will also open doors for brokers to other income streams, such as car insurance products.
“The product is a bond-forging tool for brokers, who can use the product as an add-on offering for their existing mortgage holder clients, many of whom will look to buy a car soon after buying a house”
Brendan Wright, CEO, FAST
Cars and vehicle finance
funding of loan size up to
for Westpac customers
for new-to-bank customers
Secured by Existing ABN of a minimum of 2 years
Ownership of property
TECH FOCUS FINTECHS PROVE THEMSELVES TO BANKS A recent global survey has revealed that banks worldwide are keen to join forces with fintechs, with most expecting to be working with new digital partners in the next couple of years AUSTRALIAN BANKING + FINANCE (AB+F) has reported that of 316 senior bankers worldwide surveyed by Accenture, the financial advisory firm, a solid 52% expect to be working with new digital partners within the industry in the next two years. Furthermore, a massive 42% expect to work with tech giants like Google and Apple. However, 76% of the bankers surveyed also admitted to being exposed to more risks from their new digital services than they were able to handle, according to Accenture. More than 80% think a lack of data security and ethical controls could exclude them from participating in other players’ digital platforms and broader ecosystems. “The more customers trust digital banking, the more banks introduce digital services – a dynamic that makes customer data increasingly vulnerable,” stated Alan McIntyre, head of Accenture’s banking business. “Banks want a balance between being close to innovation without jeopardising their reputation.” Nearly 50% of bank executives stated that adopting a platform business model and engaging with digital partners was critical to their success. “The massive volume of data and existing partnerships that banks already have in place today are assets that banks need to leverage to their advantage in creating new business models,” McIntyre claimed. Digital optimisation of the traditional bank business model could add 5% to banks’ return on equity, he explained, but if customers started migrating to new platform-based services outside of the banking sector, increased profitability from a shrinking business would be of little comfort to shareholders. The survey also indicated a strong desire among banking executives for a more flexible workforce – one focused on outcomes rather
than processes, with more than three quarters of respondents saying that the workforce of the future will be structured more by projects than job functions. They think that a more fluid or ‘liquid workforce’ will improve innovation by introducing more diverse thinking and individuals to the process, according to AB+F. This ‘liquid workforce’ will include a mix of traditional employees, on-demand workers, crowdsourcing, application development companies and other external sources, enabling banks to scale talent up and down as needed for greater cost variability and efficiency. A further three quarters of the bankers interviewed also expect a large proportion of their workforce to shift from individuals with deep expertise in a particular area towards more flexible, multiskilled ‘generalists’ within three years. “A flexible workforce with evolving skill sets will help banks keep up with the rapid pace of change while staying close to customers,” said McIntyre. “However, an agile and project-based workforce will also create many new management challenges for those used to a hierarchical model.” The survey confirmed that more than 80% of respondents also agreed that the widespread use of artificial intelligence provides a competitive advantage beyond cost-cutting – which mirrors Telstra’s recent global survey. The report indicated that half of the executives interviewed said their joint ventures with fintechs had already proven their value “beyond doubt”. Telstra’s report found that 90% of bankers believe fintechs will have a big impact on the future of the industry, with a third believing that start-ups will win an equal share of, or even dominate, the market.
BROKERS ON BOARD WITH HASHCHING HashChing, the country’s first online marketplace for home loans, has reached the $1bn milestone, with more than 1,200 mortgage brokers across the country signed up to the platform. The online marketplace launched in August 2015 with only a few brokers, offering pre-negotiated home loan deals with interest rates below 4% and below banks’ standard advertised variable rates. Claire Wivell Plater of The Fold Legal, a boutique financial services law firm, has also joined the fintech’s advisory board. Wivell is a long-standing member of the Business Advisory Committee to ASIC’s Licensing Division and was recently appointed to the Treasurer’s FinTech Advisory Group. Mandeep Sodhi, CEO of HashChing, said more Aussies were turning to technology to compare rates advertised by different lenders. But it’s not just the convenience consumers are after. “Customers aren’t just looking to save time. The key to our success is that our offer extends far beyond convenience. We’re able to offer pre-negotiated home loan deals from different lenders with equal features; the same products, but with an even better rate,” he said. “We’re growing at a rapid pace. One of the reasons we’ve been able to scale the way we have is because we don’t charge per lead, which is a great incentive for [brokers] to join.” Wivell’s role at HashChing will be to advise on regulatory and legal matters for the platform’s 2.0 version, Sodhi said. Atul Narang, CIO of HashChing, said the fintech was helping mortgage brokers by providing them with the productivity tools to effectively manage leads, from setting reminders to document collection in a secure and efficient way. “Our broker registration process has been automated to make it really easy and quick by allowing them to digitally sign the contract, which instantly activates their account and saves the paper clutter at both ends,” Narang said. “We have utilised all capabilities into our platform, and our proprietary algorithm learns from the broker behaviour while matching a consumer lead with a broker. I am in the process of bringing predictive analytics into our platform to target visitors with a specific home loan rate based on their geographical location and other attributes for a better consumer experience.”
COMMERCIAL FRANCHISE LAUNCHES ASSET FINANCE Major mortgage franchise Mortgage Choice has expanded its offering to include a branded asset finance product Mortgage Choice has announced the launch of Mortgage Choice Asset Finance, and the franchise’s general manager of product, Emma Dupont-Brown, says the new offering makes economic sense for the business. “Industry data from Mildura Finance found, on average, 50% of homeowners will look to purchase a vehicle six months after they buy a property,” Dupont-Brown said. “And, when you consider that more than 50% of all home loans are now written through a mortgage adviser, it makes sense for brokers to tap into the world of asset finance. “Throughout the home loan process, our brokers build great relationships with their customers, so they are in the perfect position to offer additional financial services and support – like asset finance.” As the new product offering would suggest, Dupont-Brown stated that Mortgage Choice is an advocate for the diversified business model. “At Mortgage Choice, we understand that one plus one can equal something more than two for our customers and stakeholders. As such, we will continue to concentrate on developing a multichannel, multiservice hub that successfully caters to our customers’ growing financial needs,” she said. “Put simply, we want to be known for offering more than just mortgage advice. We want to remain relevant with our customers and we will do that by delivering a broad range of financial services.” According to Dupont-Brown, Mortgage Choice Asset Finance is a comprehensive service that offers customers access to more than 25 lenders, a national car buying service, and a variety of insurance options. “Through Mortgage Choice Asset Finance, we are one step closer to being a full financial services provider,” she said. “Furthermore, given that our new asset finance offering is Mortgage Choice branded, it will help us to stay top of mind with our customers and provide us with one more opportunity to put our brand in their hands. “When designing the Mortgage Choice Asset Finance offering, we knew we needed to leverage our brand. We wanted to show our customers that we can deliver any product through any channel at any time in their financial life.”
RETAILERS TURN TO NON-BANKS
75% Of the 29 non-bank lender CEOs who participated in the eBroker Non-Bank Business Lenders Survey, 75% said the demand for credit products was ‘strongly increasing’ or ‘increasing’. None in the surveyed group felt a ‘decrease in the demand’ for their credit products
Average loan term
Average non-bank business loan size
NLG LEASING ANNOUNCES AGGREGATION SERVICE NLG Leasing has officially launched NLG Aggregation, giving brokers access to Australia’s largest panel of asset finance lenders. Director of aggregator services Frank Crombie said the launch of NLG Aggregation – an aggregation service offered exclusively to brokers – is indicative of an increasingly diversified broker market. “Brokers are increasingly realising how asset finance is a smart, flexible alternative that allows the reallocation of funds to positively affect their client’s business efficiencies, productivity, sales, and ultimately growth. Similarly, reskinning cash flow effectively can also greatly enhance a client’s lifestyle and help achieve their personal goals,” he said. “Whether it’s for professional or personal purposes, we encourage brokers to continue to simply ask whether their clients’ funds are being utilised to their maximum capacity. This advisory approach deepens relationships, provides a competitive advantage and increases revenue.” NLG Aggregation will offer brokers access to wholesale rates and exclusive products not ordinarily available across a variety of mainstream and specialist lenders. These include
consumer and commercial products for all vehicle and equipment needs, plus lifestyle assets. The aggregator service will also provide brokers with direct access to licensing, compliance and support services, removing the need to secure an individual credit licence. This includes access to professional indemnity insurance, a dispute resolution body, compliance documentation, process flows, scenario support and full lender training and support. Brokers can choose whether they obtain authorisation as a corporate credit representative and/or individual credit representative. “These benefits are often key motivators to become an NLG credit representative versus obtaining an individual licence,” said Crombie. “The extension of our licensing to the individual broker is an immediate benefit that alleviates cost, resources and liability.” All loans processed through NLG Aggregation will be assisted by a complete back-end support service, with a team of specialist finance professionals on board to assist streamlining and processing of all transactions. This will be particularly helpful, according to the aggregator, for brokers that are new to asset finance, or for particularly complex loans.
MARKET WRAP NO PUBLIC CONSENSUS ON NEGATIVE GEARING
MIXED VIEWS ON HOUSING MARKET CoreLogic’s latest quarterly Housing Market Sentiment Survey has revealed that while two thirds of Australians think now is a good time to purchase property, just as many believe the market is vulnerable to a significant correction ACCORDING TO CoreLogic research head Tim Lawless, the latest CoreLogic and TEG Rewards Housing Market Sentiment Survey highlights the paradox in housing market attitudes, with the large majority of survey respondents indicating that it’s a good time to buy a home, while as many believe the market may be vulnerable to a significant downturn. Of the 2,432 Australian residents who participated in the June quarter survey, 65% said they believed the Australian housing market was vulnerable to a significant correction in values. However, this result was lower that it was a year ago, when 75% of respondents shared concerns about a housing market crash. The survey also revealed the conflicting view that it is a good time to buy property, as indicated by 64% of respondents, suggesting the emphasis Australians continue to place on housing, despite market conditions. When asked about the impact foreign buying activity was having on Australian home values, a sky-high 94% said this activity was placing some
degree of upwards pressure, while 17% of those surveyed believed foreign buying was placing ‘extreme’ upwards pressure on home values. However, more than half of those surveyed felt that any upwards pressure on dwelling values caused by foreign demand was modest, slight or non-existent. Sydney and Melbourne – the two capital cities where capital growth has been the most substantial and housing affordability has been stretched the most – had the highest proportion of respondents who thought foreign buying activity was placing ‘extreme upwards pressure’ on home values. The Foreign Investment Review Board reports that approvals for overseas buyers to purchase Australian dwellings have been the highest in these two cities. Twenty-five per cent of Sydney respondents thought foreign buyers were placing extreme upwards pressure on dwelling values, and 22% of Melbourne respondents thought this was the case.
The CoreLogic and TEG Rewards Housing Market Sentiment Survey has revealed the public’s varying opinions on possible changes to negative gearing policy, a subject that was fiercely debated in the lead-up to the federal election. Almost one third of respondents indicated that they weren’t sure if the federal government should make any changes to the policy, while 40% said they didn’t think the Labor policy of removing negative gearing benefits for established properties should be implemented. Only 28% of respondents thought the policy should be changed. Across the age segments, the results showed that the more mature age groups, who generally receive the largest negative gearing concessions (in dollar-value terms), were most opposed to any changes, while the a larger proportion of the younger age groups indicated that they weren’t sure if any changes should be made. Leith Van Onselen from MacroBusiness recently addressed this, penning an online article criticising Treasurer Scott Morrison’s vehement view that making changes to negative gearing like those proposed by Labor would disadvantage middle-class families. The Treasurer told ABC radio that he estimated voters were split 50/50 on the issue at the July federal election, and as a result he has not been persuaded to change his mind. “I don’t accept the argument on negative gearing … it would disadvantage those middleclass families, those ordinary families, the vast majority of who are the predominant investors in this area,” he stated. However, Van Onselen has said this is contrary to the latest results from the 2016 Household, Income and Labour Dynamics in Australia (HILDA) Survey, which indicates that the top 20% of income earners owned 45.5% of all investment properties in 2014, and the top 20% of wealth holders owned 52.8% of investment properties.
IT’S A LONG WAY TO THE TOP
20 The top
of wealth holders owned
RECORD-LOW RENTAL YIELDS PLAGUE MARKET New data has indicated that Australia’s property investors are likely better off focusing on capital growth over cash flow, with rental yields at a record low and continued compression likely CORELOGIC’S June Rental Review has revealed that at a combined capital city level gross rental yields currently sit at record lows of 3.2% for houses and 4.1% for units. “It’s also likely that we’ll see yields compress further over the coming months. However, this will be dependent on growth in home values as well as the direction of rental rates. “As a result, capital growth, which has slowed from its peak, will continue to be a much more important factor for property investors than rental returns,” said CoreLogic senior research analyst Cameron Kusher. Across the individual capital cities, Hobart is currently experiencing the best rental yields for both houses and units, at 5.2% and 5.4% respectively. On the other end of the scale, house yields are at their lowest in Melbourne at 2.8%, while Sydney and Darwin are home to the lowest unit yields at 3.9%. Sydney and Melbourne both reached record-low rental yields in June, and this is only likely to change significantly if capital growth slows, as the June report shows rental growth continues to lag. According to CoreLogic, combined capital city rental rates fell 0.4% in June and are 0.6% lower than they were in June 2015, a new record-low rate of annual growth.
Over June, rental rates fell in four capital cities, with Darwin and Perth recording the largest monthly falls at 1.7% and 0.9% respectively. Of the cities that saw rents increase in June, the largest increase was in Canberra at 1%. Over the year to June, increases and decreases in rental rates have also been split evenly between the eight capital cities. Darwin and Perth were again home to the largest falls, with rents 16.2% and 8.6% lower over the past 12 months in the two cities. Smaller falls of 0.4% and 0.3% were recorded in Adelaide and Brisbane over the 12 months to June. Hobart saw the strongest rate of rental growth over the year at 4.6%, followed by Canberra at 1.9%. Rents in Melbourne are 1.7% higher than they were in June 2015 and 0.4% higher in Sydney. “It is anticipated that the weakness in the rental market will persist and where on an annual basis, we will see rents fall even further over coming months,” Kusher said. According to Kusher and CoreLogic, the factors forcing rental rates lower include lowest wages growth on record, high levels of housing investment, historically high levels of new construction, and the slowing of population growth.
52.8% of all investment properties in 2014 Source: HILDA Survey
PREPARING FOR THE INEVITABLE?
In your opinion, is Australia’s housing market vulnerable to a significant correction in values?
Source: CoreLogic Housing Market Sentiment Survey
PEOPLE A MASTER OF MOTIVATION Mortgage broker and Chatswood martial arts instructor John Gill has just won his 13th title at the USA World Martial Arts Championships
WORLD SELF-DEFENCE champion John Gill has not wasted any time in his life. A 6th Dan Black Belt Master instructor in Taekwondo and Hapkido, he has won the World Martial Arts Championships 13 times and been the winner of numerous Australian and USA Martial Arts awards. He was taught by 9th Dan Black Belt Sung Soo Lee, one of the leading Grand Masters in the world, and has been teaching others since 1985 as the owner/principal instructor at the Australian School of Self Defence. Just to add to his ever-growing list of accolades, Gill also became a qualified tennis coach after high school and went on to win the NSW, Australian and Pan Pacific Tennis Masters Championships. He is still an avid tennis player today. Of course, Gill is also a broker and has owned Melbourne and Sydney brokerage Australian Mortgage and Finance since 1999. So to say it’s been a balancing act for Gill would be an understatement. For the past eight years he has managed to juggle his broking work with competing and teaching martial arts workshops, tending to paperwork during the day and visiting clients in the evening. Focus on safety Gill’s martial arts programs at the Australian School of Self Defence have a strong focus on teaching women and children self-defence, and this has landed him a number of nominations for Australian of the Year for his contribution to women’s and children’s safety. Gill also recently wrote to Prime Minister Malcolm Turnbull to request government support for a self-protection course that would be free for all women and children in Australia. And on top of all this, Gill also conducts a program of motivational presentations and empowerment workshops called Martial Motivation, which has been especially popular in schools and businessses. “I’m trying to make it clear to people that it’s non-contact, easy to learn and a very safe and fun sport,” says Gill. He adds that teaching the mental side of self-defence in his programs shows clients how conflict can be avoided and how they can talk their way out of a difficult situation. “I really picked the brains of psychologists and had them involved in my programs.” Martial Motivation is perhaps Gill’s strongest passion, and helping women and children is his biggest calling. “If I can reduce the statistics of one in three
“Martial arts is the ultimate personal development system by a mile. It’s not about fighting, it’s about living” women being attacked, being physically/sexually abused in their life, of kids being bullied, and give them confidence,” says Gill,“it makes me feel great and it’s my contribution to society. “[Clients] like it as a personal development system – it’s more about self-improvement; that’s why I do motivational speaking now. “True empowerment is from learning the moves,” he explains. “Not from me telling you to be empowered. Actions speak louder than words – it’s how you make people feel. They feel empowered after doing my techniques and they have fun with it too.” Business black belt Gill also tailors Martial Motivation workshops to business, delivering a unique executive development program. “It helps stress relief massively; it really makes
you feel good about yourself – the empowerment from martial arts,” says Gill. “In fact, if everyone did martial arts there would be a lot less crime in the world. Because what happens with martial arts is it gives you confidence, it gives you self-esteem; you learn self-respect, and you learn to respect other people.” Often the workshops take place during staff lunchtimes, and Gill says employees then work more efficiently for the rest of the afternoon. “They are more focused and more disciplined. Martial arts is the ultimate personal development system by a mile – it’s the original personal development system; it’s not about fighting, it’s about living.” Looking ahead, Gill’s star just keeps getting brighter. His next project will be working on a movie set alongside actors as a fight choreographer for a martial arts action movie.
CAUGHT ON CAMERA On 6 July, La Trobe Financial hosted a special event for the Australian National Men’s ‘Boomers’ Basketball Team ahead of their journey to the Rio Olympics. Athletes Andrew Bogut, Patty Mills, Joe Ingles and head coach Andrej Lemanis were all in attendance. With over 340 guests, the event was held at the Glasshouse complex in Sydney. Guests included Sally Sloane, CEO of the Financial Services Council, and former Australian Boomers Mark Worthington and Darryl McDonald. There were also special guest appearances by Collingwood players Darcy Moore, Adam Treloar, Jamie Elliott and Mason Cox. The event was emceed by dual Olympian and former NBL and NBA champion Chris Anstey.
PEOPLE HOT SEAT
JOHN MANCIAMELI Principal of Sydney-based Hunterwood Solutions John Manciameli on the opportunities for brokers in the investment market, and what made him walk out of a client meeting
Who or what inspired you to become a broker? I have an undergraduate degree in economics, so finance was always a A natural interest. However, it was discovering the power of investment property in my mid-20s that really took it to another level. I used to be a spinal orthopaedics representative helping neurosurgeons doing spinal fusions with high-tech implants, but was doing real estate deals on the side. I found it fun, lucrative and rewarding. The natural career course for a spinal orthopaedics representative was to become a mortgage broker!
What is your most memorable client experience? In a restructure meeting once, a client told me he wanted a line of A credit and then proceeded to tell me, without his wife knowing, that he was going to get a divorce and was not saying anything to his wife! Needless to say I was mortified, made an excuse and left. Thankfully, there have been many great stories too. I encouraged a number of clients to build a multimillion-dollar investment portfolio, and it’s been gratifying to see the strategy work. A number of them don’t have owner-occupied home loans any more because they have sold a few of these investment properties and paid down the debt.
What will be the biggest opportunity for brokers this new financial year? A lot of brokers, particularly on the eastern seaboard, now have clients A with significant equity in their homes. By partnering up with a few reputable investment property research houses, a mortgage broker can refer these clients and expedite their investment property aspirations. Three things will be achieved: 1. The client will be shown investment opportunities they would not have been aware of. 2. Clients will become more ‘sticky’ as the broker is now seen as the gatekeeper to opportunities. 3. The business gets a new and diversified revenue stream from the investment property research house.
If you were the head of the MFAA or FBAA, what would be your first priority and why? Once the [remuneration] spotlight on our industry has lifted, A I would like to see an emphasis on attracting younger Australians into the industry and keeping them. Our industry is ageing, and we need to attract new talent and find ways to keep them as the attrition rate is not acceptable.
If you could live anywhere else in the world other than Australia, where would it be and why? It would take a catastrophic event for me to leave this country. A I absolutely love Australia and its people. Indeed, I am in awe of the beauty, sense of fairness, peace, and the opportunities for people who want to ‘have a go’. As the son of a Uruguayan mother and an Italian father, I have a real sense of what life is like on other continents, living vicariously through relatives. Australia just seems to get better despite what the naysayers would have us believe. However, if had to leave, I would head for Italy. The culture, the food, the refinement, the sense of community and the ability to appreciate the simple things is something I do admire.
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JANITA DE PAOLI BANK OF MELBOURNE BEST NON- MAJOR BANK BDM 2015
FRIDAY 21 OCTOBER 2016 | THE STAR SYDNEY www.australianmortgageawards.com.au