Australian Broker 14.07

APRIL 2017 ISSUE 14.07

Victory, or defeat? An in-depth look at ASIC’s remuneration review /18

Settle better deals La Trobe Financial eases new brokers into commercial lending /16

TONY CARN Sales director Tony Carn talks about how harnessing technology and embracing change has empowered NextGen.Net’s customers /14

Our two cents Broker associations weigh in on the ASIC review /12

ALSO IN THIS ISSUE … Solving a last-minute $355,000 deal How one broker basically saved Christmas /23 Housing market data A state-by-state analysis provides insight on where mortgage demand will be strongest /26 In the hot seat What one broker would do if he were Malcolm Turnbull for a day /30

NEWS

IN THIS SECTION

Lenders Higher interest rates could burst bubble /04

Aggregator ASIC’s broker shadow shop might be on its way /06

Technology New risks in mortgage fraud /10

Associations MFAA calls for fair and balanced commission structure /12

Consumer NSW housing completions hit record high /08

www.brokernews.com.au APRIL 2O17 EDITORIAL Editor Otiena Ellwand News Editor Miklos Bolza Journalist Maya Breen

DATES TO WATCH

Upcoming industry events and key dates

Production Editor Bruce Pitchers

ART & PRODUCTION Design Manager Daniel Williams

10 APRIL

26 APRIL

26 APRIL

Industry intelligence report

Breakfast with MP

Understanding small biz

MFAA releases data on the performance of the industry and its brokers, covering the six months up to September 2016. An afternoon webinar will cover the core elements of the report and reveal how brokers in each state are performing.

Minister for Small Business Michael McCormack will share his views on key issues affecting the mortgage industry and will meet attendees at an informal breakfast event in Sydney. MFAA chairman Cynthia Grisbrook and CEO Mike Felton will provide regulatory updates on progress on a range of regulatory matters.

MFAA and Alex Brgudac, national partnership manager with Prospa, will lead a small business webinar looking at how to grow your company in a predictable and profitable way, and how to handle common assumptions that get in the way of success.

Designer Martin Cosme Production Manager Alicia Chin Traffic Coordinator Freya Demegilio

SALES & MARKETING Sales Manager Simon Kerslake 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 Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

Otiena Ellwand +61 2 8437 4792 Otiena.Ellwand@keymedia.com.au

SUBSCRIPTION ENQUIRIES

tel: +61 2 8O11 4992 fax: +61 2 9439 4599 subscriptions@keymedia.com.au

28 APRIL

3 M AY & 2 4 M AY

NSW property market outlook

MPA Business Summit Sydney and Melbourne

The Committee for Economic Development of Australia releases its 2017 property market outlook covering the residential, retail and commercial sectors. It will also examine prudential perspectives on the market and the challenges of housing affordability.

MPA magazine’s High-Performance Business Summit features a line-up of award-winning brokers and brokerages that will provide insight and information regarding the skills and strategies businesses need to drive growth and generate revenue in the industry. The Melbourne Business Summit will be held on 24 May.

9 M AY Budget Day The federal government releases its latest budget.

ADVERTISING ENQUIRIES

Simon Kerslake +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak +61 2 8437 4772 rajan.khatak@keymedia.com.au 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, Bengaluru

1 0 M AY

3 1 M AY – 2 0 J U N E

30 JUNE

Breaking down the budget

Pepper Money’s Insights Roadshow

End of ASIC public consultation

Following the success of the 2016 event, Pepper Money’s Insights Roadshow is back with masterclasses in specialist lending on various dates in Melbourne, Brisbane, Perth, Adelaide and Sydney.

Don’t miss the chance to have your say on ASIC’s review of mortgage broker remuneration. Interested parties are encouraged to submit feedback via the government’s treasury website until 30 June.

PwC Australia is hosting federal budget briefings in Brisbane, Melbourne, Sydney and Perth (11 May) with expert speakers who will analyse and debate the budget’s business, economic, taxation and political implications.

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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.

NEWS

LENDERS GOV’T OFFERED THREESTEP PLAN TO BOOST BANKING COMPETITION

WHICH BANKS ARE MOST AT RISK? Source: Standard & Poor’s

Standard & Poor’s data suggests that regional banks have arrears rates considerably above the average. Despite handling potentially riskier loans, non-banks have relatively low arrears rates.

Customer Owned Banking Association (COBA) has outlined a three-step plan for sustainable banking competition, which it intends to present to politicians in Canberra. The strategy is part of the association’s Better for All campaign, which aims to help the Australian Prudential Regulation Authority bring more competition and choice to the national banking landscape. COBA recommends the Turnbull government allocate funds in its May budget to bring forward a planned productivity commission review of banking competition. THE

FURTHER MACROPRUDENTIAL ACTION EXPECTED FROM APRA the stable growth trends in some of the big four banks, trends in the national property market could see further macroprudential action by the Australian Prudential Regulation Authority. In a Morningstar research note looking at Commonwealth Bank, analysts predicted that the “overheating housing market” is likely to force APRA to once more slow the growth of investment lending. “Likely action, known as macroprudential controls, include the reduction in the current 10% annual growth limit on residential lending to something around 5%–7%.” DESPITE

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1.88%

Prime mortgages more than 30 days in arrears, November 2016

1.14%

Average 1.15%

0.96%

0.95% 0.63%

Major banks

Regional banks

Other banks

Non-bank Non-bank financial originators institutions

SIX PER CENT INTEREST RATES NEEDED FOR HOUSE PRICE DECLINE Analysts say borrowers should not discount chances that higher interest rates could burst a bubble created by the Reserve Bank rates need to rise nearly 6% before house prices begin to slide nationwide, according to new analysis from broker firm Shaw and Partners in the wake of the major banks’ out-of-cycle interest rate hikes. In the wake of repricing, Shaw and Partners warned clients not to discount chances that higher interest rates could burst a bubble created by the Reserve Bank, which slashed the official cash rate to a record low of 1.5%. David Spotswood, senior analyst at Shaw and Partners, said it would take the cash rate rising to 3.5%, or real mortgage rates heading to around 5.75%, for house prices to fall across the country. MORTGAGE

“This may sound large, but who knew interest rates would get this low,” he said. “We find it continually surprising that people talk of [a] crash in house prices due to supply, fear of lack of Chinese buyers, falling commodity prices, etc. The key drivers of house prices are the availability of finance, the cost of finance and if you have a job.” Without any prior warning, NAB lifted variable owner-occupier rates and Westpac jacked up rates more severely for property investor customers for principal and interest loans. Commonwealth Bank increased variable home loan rates and Australia and New Zealand Banking Group later followed suit with variable home loan and business loan interest rates.

As per Shaw’s analysis, borrowers could still access owner-occupied mortgage rates of around 4% after discounts, providing more affordable debt (wherein a $1m loan would cost around $4,000 of interest each month). Spotswood said house prices were 25% overvalued compared against wages. “Pre-2000, house prices were five times yearly income, now they are eight times. House prices are 60% overvalued versus 2000 on this basis. House prices look like a bubble on this measure,” he said. He further noted that house prices appeared “well supported” relative to interest rates and could lift further if rates didn’t rise. The research concluded that the last two times house prices fell nationwide was in 2009 and again in 2012-2014, when debt repayments exceeded 30% of borrowers’ wages. For the bottom to fall out again across the country, Spotswood said, “We need a discounted mortgage rate of around 5.75%.”

NEWS

A G G R E G AT O R S CBA REACHING FOR 100% OWNERSHIP OF AUSSIE Bank is allegedly in discussions to purchase the remaining 20% share of Aussie Home Loans. According to The Australian Financial Review, the bank is working towards 100% ownership of the franchise, with the final price to be based off Aussie’s performance and profits for the year to 30 June. The 20% claimed to be on the line is now owned by Aussie Home Loans’ founder John Symond. CBA last expanded its share of Aussie in December 2012, when it increased its shareholding from 33% to 80%. COMMONWEALTH

PLAN HOSTS BROKER TRAINING Australia held a three-day conference in early March for its top-performing brokerages to hear from industry leaders across the mortgage, business, technology and training sectors, reinforcing the aggregator’s ongoing commitment to professional development. Keynote speaker Steve Weston, an industry veteran who’s held leadership roles at Barclays and St George Bank, spoke about how brokers can thrive in a highly competitive market, how the third-party industry could evolve and future trends in mortgage broking. PLAN

ASIC’S BROKER SHADOW SHOP IMMINENT While the regulator has put the industry on notice, one aggregator says the review is not seen as a “witch hunt” but a way to better understand industry operations THE Australian Securities and

Investments Commission (ASIC) may be due to commence the shadow shopping mentioned in its proposed suitability of advice review for brokers. This additional targeted review was announced in ASIC’s review of mortgage broker remuneration released on 16 March. Talking to Australian Broker at a Connective professional development day in Sydney on 23 March, director Mark Haron said the regulator has already started further review activities and has put the industry on notice. “Our understanding is that if they haven’t already commenced

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some of the shadow shopping, it’s imminent. They will be doing more shadow shopping to ensure that there are good customer outcomes,” he said. The regulator would conduct any additional reviews in a fair and balanced manner, he added. Monique Hope-Pearson, outgoing group legal counsel at Connective, said the aggregator had a good working relationship with ASIC. “We don’t feel that this review was a witch hunt in any way. It’s been trying to get a better understanding of how the industry operates. A lot of the report was talking about the industry, how it was constructed and who the players are,” she said.

From an industry perspective, Connective always expected ASIC to continually review any of their suggestions, Haron said. “In three years’ time, they’ ll want to know whether or not there have been unintended consequences and whether anything needs to be updated or changed. Any industry that is regulated to the extent that we will be, will have constant reviews,” he said. For its second market review, also announced in the review of mortgage broker remuneration, ASIC will ask for a repeat of any data gathered to compare trends and changes in the compiled information, he added. “We will ensure that we remain thoroughly involved in any review moving forward,” said Hope-Pearson. “We’ve got really sound data at Connective where we can ensure that good outcomes are reached.”

“Our understanding is that if they haven’t already commenced some of the shadow shopping, it’s imminent. Mark Haron Director of Connective

NEWS

CONSUMERS NSW HOUSING COMPLETIONS AT 46-YEAR HIGH number of new housing completions in Sydney has reached its highest level in 46 years and looks set to continue trending upwards. Figures from the Department of Planning and Environment’s Metropolitan Housing Monitor released 24 March reveal that there were 35,382 houses completed in the Greater Sydney area in the year to January 2017. This was 26% higher than the same time period last year (27,999) and 150% greater than in 2010 (14,410). The NSW government has a target of more than 50,000 dwelling approvals each year. THE

FOREIGNERS PURCHASING $8BN OF PROPERTY PER YEAR

FORTY-FOUR PER CENT OF ECONOMISTS CALL TO SCRAP CGT CONCESSIONS

Despite Chinese government restrictions on cash outflow and tighter criteria by Australian banks on foreign investment lending, momentum among Chinese buyers is not slowing down

half of Australia’s top economists have backed the complete elimination of capital gains taxation (CGT) benefits for property investors. A recent survey by the Economic Society of Australia Monash Forum polled 27 economists on the following statement: “Capital gains tax deductions for housing investment should be removed because they overstimulate the housing market, contributing to rising house prices.” Of those polled, 44% agreed, 40% disagreed, while 14% were uncertain. This statement was deliberately more extreme than measures proposed by the Australian government to reform the current 50% CGT benefit on property investment. NEARLY

are purchasing property at an annualised rate of $8bn per year, equal to 25% of new supply in New South Wales and 16% in Victoria. These figures come from research completed by Credit Suisse analysts Hasan Tevfik and Peter Liu using data obtained under a freedom of information request from the state revenue offices of both states. The research reveals a staggering percentage of foreign buyers are from China, which includes buyers from Hong Kong, Macau and Taiwan, as well as the mainland. “The Chinese have accounted for almost 80% of foreign demand in NSW. The second biggest group, the Indonesians, account for just 1.7% of foreign demand.” There is little evidence that the

inflow of foreign buyers has stopped, they wrote, despite the numerous restrictions set in place recently by the Chinese government as well as Australian lenders. “The taxes collected imply foreigners are currently purchasing an annualised $4.9bn of New South Wales housing and $3.1bn in Victoria,” the analysts wrote. From October 2016 to January 2017, there were more than 1,500 properties settled involving foreign buyers in NSW, with a total of $1.63bn in value. Chinese buyers settled on 80% of these (more than 1,200 properties) and accounted for 77% of the total purchase value. Tevfik and Liu also found that foreign buyers were still easily meeting their settlement obligations in both states despite

FOREIGNERS

a tighter lending environment. “In New South Wales there were $225m of foreign settlements in October 2016, and this rose to more than $450m in both November and December. In Victoria, the value of December settlements was 50% higher than in November.” Gavin Norris, head of Australia at Chinese international property portal Juwai.com, has not seen any slowdown on its platform either. While changes in capital controls, regulations, debt finance, availability, etc, have slowed transaction time down, the overall drivers behind Chinese interest in Australian property have far outweighed these “minor blips”, Norris said. “They’re all long-term sustainable motivations as to why these guys are buying real estate.” The primary driver behind Chinese interest is education, he said. Melbourne is by far the most popular for buyers through Juwai. com, as they see the city as having a stronger educational offering. The second strongest driver for Chinese buyers is safety, followed by migration and tourism.

POPULATION CHANGE AND DWELLING COMPLETIONS Source: NSW Government Planning and Environment, Metropolitan Housing Monitor Sydney Region

75,000

8

45,000

30,000 50,000

www.brokernews.com.au

2016

2014

2015

2013

2011

2012

2010

2009

2007

2008

2005

2006

2004

2002

2003

2001

1999

2000

1997

1998

1996

1995

1994

1993

1991

1992

1989

1990

1988

1987

1985

0 1986

10,000 1983

15,000

1984

25,000

Dwelling completions

Dwelling completions Yearly population change

1982

Yearly population change

100,000

NEWS

TECHNOLOGY

PARTNERSHIP TO SPEED CLIENT DATA COMPILATION FOR BROKERS -based banking fintech The System Works Group (TSWG) has teamed up with Swiss data aggregation specialist eWise, creating a digital platform that integrates a client’s financial accounts onto a single dashboard. The software, called the Digital Play Platform (DPP), is the next stage in TSWG’s lengthy history of providing online solutions to mutual banks, credit unions and building societies. It can seamlessly integrate with core banking and enterprise systems as well as third-party systems, delivering a comprehensive suite of banking functions, including mortgage applications, to users. BRISBANE

MORTGAGE FRAUD INCREASING YEAR ON YEAR Advances in technology and digital applications have introduced new risks for brokers number of cases of mortgage fraud has been on the rise, with brokers warned to look out for falsified documents supplied by clients seeking unsuitable loans. “The technological advancements of digital applications enable people to create documents or change existing documents to be more and more authentic looking,” said Paul Palmer, Connective’s compliance support manager, at the aggregator’s professional development day in Sydney on 23 March. The aggregator has seen statements that lenders could only identify as fraudulent because they had no record of issuing them, Palmer said. “Obviously, you can’t expect brokers to pick that up. Fortunately for us, most people trying to commit THE

fraud aren’t that good. They always make spelling mistakes, a typo, or they get their mathematics wrong.” Palmer urged a proactive rather than reactive approach. He suggested brokers undertake all due diligence, meet required responsible lending obligations, cross-check and verify all documents provided by the customer, and look for inconsistencies. “We see a lot of differences in fonts, in key financial data, and also, as I said, a lot of mathematical areas. Run their payslips through the pay calculator and you’ll be amazed at how often that finds something. “One of the biggest ones I found over the past 12 months is where there were two payslips and they forgot to change the accrued annual leave entitled from

payslip to payslip; which we would expect to change. It’s a very common mistake.” If it is impossible to meet the customer face-to-face, Palmer encouraged brokers to mitigate any risks by becoming familiar with conditions that lenders set up to accept remote brokerclient meet-ups. “From our perspective, a good thing is to get certified ID. Through Skype or FaceTime conversations, get a snapshot of their ID. It fulfils an obligation to show you actually know who you’re dealing with.” Finally, Palmer warned brokers to put themselves in the right mindset when it comes to fraud. “Don’t think that you can’t get caught,” he said. “Unfortunately, there’s been a significant increase in the amount of referrals looking to give loans to mortgage brokers. In particular new-to-industry brokers have been targeted by people who have clients that can only service or get a loan through submitting fraudulent documentation.”

Although identity takeover grew by 80% from 2015 to 2016, falsifying personal details remains the most common type of fraud, according to VEDA. Payslips were most affected, “by a large margin”. 70 60

71% 2015

58%

2016

50 40 30

22%

20

19% 9%

10 0

10

changes for banks and lenders to include positive credit reporting data will make life easier for anyone looking to take out a mortgage. Suzanne Steele, managing director of credit bureau Experian, said Australia was at odds with the world in how consumer data is reported. Out of the 19 countries that Experian has a presence in globally, only Australia and Brazil do not report on positive credit data. Currently, lenders solely report on negative data, such as if a consumer misses a loan repayment or defaults. However, this is set to change over the coming year, Steele said. PROPOSED

TYPES OF FRAUD

80

POSITIVE CREDIT REPORTING A BOON TO MORTGAGE HOLDERS

4% Falsifying personal details

www.brokernews.com.au

Identity takeover

Undisclosed debts

8%

4%

Fabricated identity

3%

2%

Other

NEWS

A S S O C I AT I O N S

“IT’S NOT LIKE COMMISSION IS A DIRTY WORD”: FBAA 90% of countries in the world pay commission, so it’s not like commission is a dirty word. There’s no reason why brokers here shouldn’t be paid commission,” said Peter White, executive director of FBAA in response to an article published by The Australian Financial Review prior to the release of ASIC’s remuneration review. He said the current structure combining upfront and trail supports best practice and best outcomes for consumers. Australian brokers are some of the lowest paid in the world as far as commissions are concerned, he added, citing an upcoming research paper from the FBAA. [BROKERS IN]

MFAA PUSHES FOR BALANCED, FAIR & EQUITABLE COMMISSION STRUCTURE Any tweaking to the standard structure requires consultation with brokers, aggregators and lenders much uncertainty around how broker remuneration structures will be changed, Cynthia Grisbrook, chair of the Mortgage & Finance Association of Australia (MFAA), has very clear views on what the next phase should look like. “The MFAA’s position is it has to be balanced; it has to be fair and it has to be equitable,” she said during a panel at the Australian Securities & Investments Commission (ASIC) Annual Forum 2017 in Sydney on 20 March. On the panel, Grisbrook was joined by Brett McKeon, managing director of aggregator Australian Finance Group, Erin Turner, head of campaigns and policy at consumer advocacy group CHOICE, and Anthony Waldron, executive general manager of broker partnerships at AMID

ASIC REMUNERATION REVIEW HAS LIMITATIONS, SAY BROKER ASSOCIATIONS made by ASIC in its remuneration review were generally praised by leading figures in the industry. However, both broker associations issued words of caution about how the regulator and government should proceed. MFAA suggested further study to see if perceived conflicts of interest actually result in poor consumer outcomes, while FBAA questioned whether the data goes far enough to form conclusive results. Other industry players also weighed in, with Mortgage Choice’s CEO John Flavell saying the report showed ASIC believes mortgage brokers provide a tremendous value to consumers. RECOMMENDATIONS

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National Australia Bank. It being only three days into the consultation process, Turner said there was no easy answer on what the final commission structure would be. “I do think it needs to address the clearly identified problems with standard commissions,” Turner said. “Product strategy conflict, lender choice conflict – any solution needs to address those two conflicts and it probably needs some standardisation.” Grisbrook pointed to two parts of the review that state that trail commission is beneficial and “trail does not directly lead to poorer outcomes” for consumers. “This indicates that ASIC is not seeing any systemic problems in there,” Grisbrook said. What any tweaking to the standard structure

means, though, will require consultation over the next few months with members, aggregator partners and lenders, she added. Waldron said there have been numerous commission structures that have waxed and waned throughout the industry over the years. “It talks in the report about LVRs. It talks about paying, not just on the total loan facility, but on drawn down amounts. I think those are the types of discussions we’re going to see and the report itself hints at where those discussions should start.” However, there is a need to represent and be fair to all the work that is done by the broker community, he said. Panel moderator Stephen Sedgwick, head of the retail banking remuneration review by the Australian Bankers’ Association, added that all stakeholders in the debate would not disagree that competition in the sector needs to be preserved.

ASIC’S REVIEW OF REMUNERATION REPORT: SCOPE 4 years’ worth of data from

19 lenders

14 aggregators

19 broker businesses

(6 large, 4 medium, 4 small)

(covering 198 individual brokers)

4 comparison websites

3 referrer aggregators

The lenders included

4 major banks (+3 of their subdivisions)

2 foreign banks 5 other banks

3 credit unions and mutual banks

2 non-bank lenders

ASIC’S REVIEW OF REMUNERATION REPORT: DETAILS The 157 data points included analysis of borrower characteristics

property information

loan channel

loan pricing

loan features

loan performance

application process

commission payments

High-Performance Business Summit 2017

The report surveyed

3,000 consumers to better understand perceptions and experiences with brokers

The report analysed

$550bn in new loans sold from 2012–2015 to see where brokers sent loans and how much they got paid

GROW YOUR BUSINESS AND INCREASE YOUR REVENUE SYDNEY • 3 MAY MELBOURNE • 24 MAY LIMITED SEATS AVAILABLE! Register online now at hpbsummit.mpamagazine.com.au

FBAA HOSTS MASTERCLASSES will hold a nationwide series of classes on commercial and equipment lending in partnership with Vow Financial. “[We have] brought together a group of lenders, including CBA, ANZ, ING, Macquarie, Thinktank and a few others as a part of this collaborative effort to put a masterclass together into the commercial space,” FBAA director Peter White said. Lenders want to see a higher level of skill sets in brokers, White said, while broker market penetration is significantly lower in small-business lending than in the home loan sector.

Event partner

Gold sponsor

FBAA

Exhibitor

MPA HPB 2017_strip ad for ab.indd 1

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3/04/2017 9:29:10 AM

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COVER STORY

BECOMING A TECH TRANSLATOR Tony Carn’s rise to the head of sales at NextGen.Net – and becoming a go-between for technical people and business people – is not the story you would expect

NEXTGEN.NET BY THE NUMBERS

24 Years in business

2004

ApplyOnline’s first electronic lodgements

13th

ApplyOnline’s anniversary this year

97%

Percentage of Australian brokers using the software

60

Number of brands using the software

1+

The ApplyOnline mobile app was launched just over a year ago

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been six years since Tony Carn took the helm of NextGen.Net’s sales team. At the time, he was a newcomer to the technology sphere who had to learn and embrace its growing influence on the mortgage industry, just like a lot of his customers. NextGen.Net has been providing lenders, aggregators and brokers with technology that handles loan applications, processing and settlement for 24 years. In 2004, electronic lodgements started gaining traction after CBA, Westpac, Macquarie, ANZ, and broker groups Aussie, AFG and Mortgage Choice led the charge away from paper-based applications. Since then, most others have followed suit. NextGen.Net has nearly cornered the Australian market, with 97% of mortgage brokers – roughly 12,000 people and 60 brands – using its ApplyOnline platform, which celebrates its 13th anniversary this year. IT’S

Green thumb to tech head When Carn started as sales director, he didn’t know much about technology, but he was told not to panic. As he was part of a company full of tech heads, “everyone at the organisation will always know more about technology than you,” he was told, “but you know our customers.” That was, and still is, Carn’s forte. After graduating from Hawkesbury Agricultural College, now known as Western Sydney University, with a bachelor’s of business in land economics and property management, he entered the workforce during the 1990 recession. Unable to find a job in his field, he became a gardener at the

headquarters of the Seven Network. His time planting flowers didn’t last long. He was soon moving full steam ahead in the banking industry, first as marketing manager at Rabobank. He later held positions with Australia and New Zealand Banking Group, Australian Finance Group, Homeloans Ltd and National Australia Bank, where he worked as a business development manager and travelled the country as a regional sales manager. “With the roles that I had, I had very good breadth, so working in wholesale funding, working

empowering people for distribution and efficiency,” Carn says. One of NextGen.Net’s strengths is building strong “multifaceted” relationships with customers by keeping them informed and engaged. It regularly hosts consultations, workshops and strategy meetings to get feedback from brokers and lenders, and to ensure compliance and governance regulations are met. The company has also recruited three training managers to assist, support and train customers on existing platforms and new services, and has established customer engagement teams. Those teams work with a portfolio of clients to become experts in those customers’ needs, improving and building platforms designed specifically for their businesses. NextGen.Net also runs a research and development arm in Newcastle, which taps into the coding and computer science graduate programs

“Ultimately, I think we’re not so much about technology, but empowering people for distribution and efficiency” in broking, working in mortgage insurance and working in lending, that is everyone who is our customer base these days. I was blessed with a pretty good understanding of all those different models and the intricate way in which all those things hang together,” Carn says. Now with a firm grasp on all aspects of the technology NextGen. Net employs, Carn has become a translator between technical people and business people. “It’s really important that we engage with businesses at a technical level, an operational level, a sales level and a management level, and it’s important for our customers, too, that they understand what we do. “Ultimately, I think we’re not so much about technology, but

at the local university – sparing some from a gardening career, no doubt. “We’re always talking to customers about what we’re doing,” Carn says. “There are still organisations where I personally see people who still operate very much in silos. I don’t think you have to be across everything, but you’ve got to have a healthy appreciation of all the moving bits of your business.” Planning for change While it’s easy to get diverted by the rapid pace of technology, Carn is a firm believer in sticking to the plan. NextGen.Net follows a road map that’s redrawn and reviewed annually based on consultation and education within the market. It looks at highlights and problems the industry

business that embracing change is not always the norm. “For us, our competition is predominantly mindsets. It’s the mindset of actually getting people to change and being comfortable to change. It might be retiring the system that someone built 30 years ago, and they just can’t let go of it. They do eventually, but that’s a challenge.”

faces and prioritises what work needs to be done to deliver solutions. “We know what we’re doing every year and it’s important, unless absolutely necessary, to not get distracted by dogs running past or to chase rainbows, and go, ‘Oh, that’s a good idea, let’s drop everything and go and do it.’ Just have a strong road map and stick to it,” he says. It’s having a good bird’s-eye view of the market that has directed the company over the years to improve and include such innovations as validation technology, dynamic checklists and artificial intelligence in its programs. The ApplyOnline software has the ability to immediately identify

and validate property addresses, title details and business numbers – just some of the 500-odd validation rules lenders include in applications – limiting revisions and back-and-forth with lenders. It also uses optical character recognition, so it can read documents and identify if they are filled out properly. This means applications no longer have to be manually processed and the software can give the green light instead of a person. Lenders can also update serviceability rules, policy tweaks and supporting document requirements in real time, publishing immediate changes on aggregator and broker networks, so there’s no lag in

information distribution. ApplyOnline is also updated monthly with enhancements, so lenders can get their products to market quickly. Carn admits that while the nittygritty updates don’t make for riveting reading, “some of the great innovation is the unsexy stuff, and it’s the stuff under the covers that people don’t see [that’s important].” “There’s so much we compare and generate behind the scenes for more efficiency and more sharing of information and benchmarking,” he says. While the company follows its annual blueprint, it’s not averse to change and neither is Carn. But he’s learned after all these years in the

Future focus Information security, compliance and regulation are just some of the ongoing challenges in the technology field. For NextGen.Net, ensuring all its products comply with the growing requirements of lenders is a top priority, as well as staying ahead of the curve on security issues. NextGen.Net makes a point of doing all development and data hosting onshore to ensure it’s done to a “gold-plate standard”, Carn says, using the highest level of encryption and making sure data is secure at rest and when it is transferring between parties. While there is no shortage of hurdles moving forward, Carn says NextGen.Net is working on some exciting initiatives, including a new user interface and user experience, and better integrating of the borrower into the broking process, something Carn calls a “game changer”. The latest tick of approval came from a bank that’s looking at using the same software many brokers use on a daily basis in its third-party branch channel. NextGen.Net is empowering lenders and brokers through technology and is giving them the tools to produce quality applications. The future is getting those applications real-time, unconditional approval, Carn says. “Changing that process of what the bank does to be more of an audit process rather than an approval process, that has real value. Brokers on that journey, by embracing technology, have got no competition to worry about.” AB www.brokernews.com.au

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BUSINESS PROFILE

SETTLE HIGHER DEALS, WRITE FEWER LOANS

La Trobe Financial makes commercial lending a no-brainer for brokers number of brokers entering the commercial lending sector is growing significantly, and why wouldn’t it be? The perks are undeniable, namely diversification, increased revenue, an expanded scope of business and more opportunities. Not to mention that in order to generate the same income of writing one commercial loan, a broker would generally have to write two to three residential loans instead. If you’re looking for proof in numbers, consider this: the country’s top 10 commercial brokers, as rated by MPA magazine, found their average total loan volume increased by 81% to $150m from 2014 to 2016. In that same period, the number of loans per broker climbed to 70. Yet just 11% of brokers harnessed this revenue stream over the course of six months last year, according to a report by the Mortgage & Finance Association of Australia. Clearly there’s no shortage of space – or lack of opportunities – for more brokers to enter the fray, especially when it comes to servicing small and mediumsized businesses. As SMEs look to take advantage of the low interest rate environment and utilise their self-managed super fund (SMSF) to secure their own business premises, it’s as good a time as any for brokers to tap into commercial lending, says La Trobe Financial vice president and head of credit Steve Lawrence. Not only are the little guys looking for loans, but traditional residential property investors are now keen to chase commercial property, because it produces higher THE

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yields. More and more investors are looking at small- to medium-scale commercial properties around the $3m mark for retail, offices and light industrial. Commercial

forecast to remain at low levels, Lawrence says. “With diversification taking hold in the broking industry, we continue to see more brokers entering the

“If you can write a residential loan, then you can write a commercial loan, and with our experienced commercial team we can provide the necessary training” Steve Lawrence, VP La Trobe Financial property is expected to continue being the preferred choice for many investors as residential yields are

commercial market. This is a trend we anticipate will continue,” Lawrence says.

“The growth in this market has also been contributed to the recent regulatory changes, which have resulted in some lenders tightening their overall appetite for commercial and investment loans, which pleasingly for us has resulted in the origination of a high proportion of what are traditionally known as bank deals,” he says. BF Money director George Karam has no regrets about making commercial lending the core of his business in 2012. “I saw that there was a gap in the market for quality property finance for commercial brokers, so I wanted to fill the gap at that time,” he says. In 2015/16, he settled 41 commercial loans to the tune of more than $278m. Unsurprisingly, he’s since won many industry accolades, including the 2016 commercial broker of the year award at the Australian Mortgage Awards. “It’s a very exciting time in the evolution of the industry. I’ve been doing it for so long; I’ve seen it from its infancy to where it is now,” Karam said. “There’s a real welcome momentum about the value proposition and the importance of what commercial brokers can do in meeting the needs of the client and also in bringing efficiency and volume to the lenders.” Breaking into the market Now that many brokers want in on

GOING IT ALONE – THE BOTTOM LINE Source: NAB, The Lure of Entrepreneurship: Australia’s Start-up Culture (2016)

How much money do you think you will need (or did need) to start your own business? 50% I would love to own my own business

46%

40%

I have already started my own business 30% 24%

20%

6% 0%

16%

14%

10%

Less than $5,000

8% $5,000– $9,999

20%

8% 6% $10,000– $19,999

8% $20,000– $49,999

17% 8%

$50,000– $99,999

7% $100,000– over $1m

10%

Don’t know

Sponsored by

this lucrative revenue stream, the question is how to make it happen. Lawrence says La Trobe Financial’s aim is to keep it as easy and as similar to its residential loan process as possible. He says that the company has adopted streamlined lending systems to keep approval steps simple and accessible for new brokers. Products are designed to look and feel like standard residential transactions, so it uses the same application form, serviceability calculator, income verification methods and loan documents, and it requires the same accreditation. Once accredited with La Trobe Financial – a process that is often automatic via the major aggregators – brokers are free to use all of the company’s products. La Trobe Financial recently partnered with Simpology on its e-lodgement loan app tool to deliver a dynamically configurable online loan application for all its products, including SMSF, commercial and construction/ development finance. “If you can write a residential loan, then you can write a commercial loan, and with our experienced commercial team, we can provide the necessary assistance and training,” Lawrence says. For brokers unfamiliar with commercial lending, Lawrence recommends starting with a reasonably small and non-complex commercial transaction, and opt for a lender who is willing to assist them through the process. Karam echoes that strategy: “The best advice that I can give to people wanting to get into the industry is start by doing loans you know how to do, or are easy for you to learn how to do, and grow from there. Let it be a long-term agenda rather than stepping in and out.” Brokers interested in specialising in the field should align themselves with complementary partners, such as financial planners and accountants who can be a good source of referral, Lawrence says. They should also tell their aggregator’s business development managers (BDMs) that they’re now someone who specialises in commercial transactions. Aggregators often have internal referral networks for commercial finance, drawing on the experience

of other brokers who can provide mentoring. Aggregator BDMs will also have a solid understanding of various lender policies and can work with lender BDMs to arrange for any additional training or accreditation, Lawrence suggests. Lender accreditation can often be the first major hurdle, so brokers should do their homework. Since the volume of commercial business a broker intends to write with a lender will likely determine if the sometimes onerous accreditation requirements are worth it, inquire about the process before starting to lodge applications, he says. There are some lenders with reasonably simple, even automatic, accreditation processes for commercial lending offering product training with live applications on the go. As always, a lot of new business starts by talking to existing clients, particularly those who are selfemployed and who might be interested in buying office space. “Identify clients who already hold commercial property and see if there is an opportunity to refinance it for them, particularly if they have held the property for some time. We often see untapped equity sitting in a customer’s asset and liability statement tied to commercial property,” Lawrence says. Karam, who has worked with La Trobe Financial, says he sees the specialist lender as a key player in the industry with a range of products that other commercial brokers should consider. La Trobe Financial offers commercial loans for individuals, companies, trusts and SMSFs, and can cater to all non-specialised commercial properties, including retail shops, offices, light industrial and rural. Lawrence says there’s an increase in demand for SMSF loans secured against commercial property, typically from SMEs looking to purchase the premises they currently operate from. “Brokers should give it a go, or alternatively they can sit back and watch potential clients, and income, go floating past,” Lawrence says. “La Trobe Financial’s team of experienced commercial credit analysts can assist with commercial transactions and are more than happy to help brokers learn on the job.” AB

Steve Lawrence, vice president and head of credit La Trobe Financial

ARE YOU READY FOR COMMERCIAL LENDING? ASK YOURSELF...

Am I accredited?

Are the documents easy to complete?

Do I understand the lender’s process?

If I get stuck can I call someone for help?

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NE WS ANALYSIS

VICTORY, OR DEFEAT? The mortgage broking commission story is one marked by periods of calm and crisis. The question is, does ASIC’s remuneration review signal victory, or defeat? Ben Abbott reports Finance Brokers Association of Australia (FBAA) executive director Peter White, the questions brokers are asking about the Australian Securities and Investments Commission’s (ASIC) recently released review of mortgage broker remuneration come down to very basic and human concerns. Will it hurt their businesses, and therefore their livelihood and families? Like other industry leaders, he believes it will not. “My answer is no, it won’t,” he says. “Yes, it may change some things, but not to the detriment of small businesses. I could never see the Turnbull government wanting that outcome.” ASIC’s review, released in March, contained recommendations for the future of broker commissions and payments. They include making some changes to the standard commission model, and moving away from volume bonuses, bonus payments and soft-dollar benefits. The industry has been given three months to respond as part of a consultation process, after which ASIC may recommend the changes are implemented. Another review of remuneration will be conducted in three to four years’ time to assess if more revisions are necessary. However, as there is no recommendation to scrap the industry’s upfront and trail commission structures – which most brokers rely on to put bread on the table – the industry’s stakeholders are publicly claiming a win for brokers, and the FOR

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mortgage industry as a whole. “ASIC has found that upfront and trail, in the main, aren’t driving sub-optimal outcomes for consumers and therefore

that is good for the industry.” The commission conundrum Broker commissions have been under threat for years on a

“ASIC has found that upfront and trail … aren’t driving sub-optimal outcomes for consumers and therefore there is no reason to adjust them” Mike Felton, CEO MFAA there is no reason to adjust them,” says Mike Felton, CEO Mortgage & Finance Association of Australia (MFAA). “We don’t see ASIC getting really involved in changing those core commission structures, and we see them continuing to remain as they are and fundamentally

number of fronts. Firstly, there are the regulators. Ever since the financial planning industry’s experience with the Future of Financial Advice reforms, which banned commissions outright and required planners to act in clients’ best interests, the mortgage industry has feared

the overzealous hands of our politicians. Throughout the introduction of the National Consumer Credit Protection Act (NCCP) regime and beyond, the industry’s business and association stakeholders have done everything in their power to lobby government in public and in private to ensure the industry’s value is clearly understood – and that it is not next. Then, there are the banks. In the midst of the financial crisis in 2008, brokers’ largest financial supporters slashed the commissions they paid brokers by 30%. The cut still rankles many brokers, and has forced them to become much more efficient to shore up profitability. In fact, it’s been the possible demise of commissions, and the inability of any small broking

WHAT ASIC WANTS Source: ASIC Review of Mortgage Broker Remuneration (2017)

Changes to the standard commission model to reduce risk of poor consumer outcomes

Brokers can look forward to new commission structures that do not pay incentives based on the size of a loan, or encourage those that initially have large offset balances. For example, metrics like compliance may become a bigger part of calculating upfront and trail payments.

A move away from bonus commissions and bonus payments, which increase the risk of poor consumer outcomes

Volume bonuses and bonus payments may soon be a thing of the past as the mortgage industry follows the financial planning industry and the insurance industry. It is hoped this will remove one temptation for intermediaries to favour their own interests over those of the end client.

A move away from softdollar benefits, which increase the risk of poor consumer outcomes and undermine competition

Soft-dollar benefits like trips and presents that may encourage brokers to recommend one lender over another have been singled out by ASIC. It will argue that soft-dollar commissions should be phased out to enhance consumer protection.

business to have influence over the outcome, that has led many industry leaders to call for brokers to move to a fee-for-service model, or to diversify to develop other income streams. It’s a point of vulnerability brokers believe could threaten industry sustainability. PFS Financial Services’ Daniel O’Brien, who heads his singlebroker business, says any further commission reductions would be negative. “My only concerns [about the ASIC review] are around commission. I am all for initiatives and changes that are geared towards improving the customer experience. But reducing commission below the standard average upfronts of 0.6% and 0.15% trail is not acceptable and it will not improve customers’ experiences,” he says. A fringe focus? ASIC has opted – for now, at least – to focus on fringe changes, rather than an overhaul. “I think what they may look at is tweaking commissions. Rather than based on volume, for example, [payments] may be part of a more balanced scorecard. When it comes to calculating an upfront, you might include other factors, like the type of loan or risk value,” Felton says. John Flavell, CEO Mortgage Choice, agrees changes will be limited. “From the report, we could see ASIC believes the logic behind the current commission model, which involves an upfront and trailing commission payment, is sound,

but believes there is the potential to make some subtle changes around the fringes of the current remuneration structure,” he says. However, there is room for concern. Despite the industry’s success in defending the value brokers provide, ASIC still clearly views commissions as a conflict of interest. In fact, it outlines in detail the two conflicts it considers the most problematic. The first – termed a “product strategy conflict” – occurs when a broker recommends a loan larger than the consumer needs or can afford in order to maximise their commissions, including recommending a particular product or strategy to maximise the amount that the consumer can

commission, even though that loan may not be the best loan for the consumer, something ASIC has called “lender choice conflict”. Flavell says the aggregator’s own research has shown commissions were not swaying brokers. “Mortgage Choice analysed the lender mix between July 2009 and June 2014 to establish whether increases in upfront commission payments do have an impact on the volume of sales to a particular lender, and therefore influence the overall revenue rate. The analysis showed they do not. The changes in the mix are in line with improvements to the service provided by the lender or special offers on the loan itself,” Flavell says.

“The fact that broker market share continues to grow … would suggest borrowers are very happy with the service they receive” John Flavell, CEO Mortgage Choice borrow, like an interest-only loan. ASIC’s detailed analysis of industry data revealed that the broking channel is currently responsible for larger LVRs (by between 1% and 4%, even when the difference in customer types is taken into account) and more frequently places customers in interest-only loans. There’s also the chance brokers could be incentivised to recommend a loan from a particular lender because the broker will receive a higher

While the MFAA’s Felton says there’s no talk of more radical measures to deal with any perceived inbuilt conflict, like standardisation of commissions or capping, in the long-term, can regulators allow a conflict of interest of any type – even if it is a small one – to stand? Faith and hope While acknowledging ASIC has done a thorough job with the industry’s data, FBAA’s White questions if some points could be

PAYING THE BROKING CHANNEL Source: ASIC Review of Mortgage Broker Remuneration (2017)

Brokers were paid $1.42bn in upfront commissions on $175bn in home loans in 2015, up from $729m on $98bn in home loans in 2012.

$1.42bn

$175bn

upfront commission

The channel also reaped $984m in trail commissions on an average outstanding balance of $545bn in home loans, compared with $733m on an average outstanding balance of $380bn in 2012.

$984m

$545bn

trail commission

On average, brokers receive an upfront commission of 0.54% and trail commission of 0.14% after aggregator costs.

0.54%

upfront commission

0.14%

trail commission

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FE AT URES

inaccurate. In particular, he says it is difficult to claim a disparity between the size of loans through the broker channel and the banks if the regulator has not gone and checked if bank customers also got top-ups for additional items, like renovations or personal car loans, at the time of, or during the 12 months after, the settlement of the loan. PFS Financial Services’ O’Brien, likewise, is nonplussed by recommendations for moving away from soft-dollar commissions, saying they are a part of “every industry known to man” and are unlikely to influence where a broker places a loan. “Ninety-nine per cent of brokers place a deal where it best fits. Which bank buys the best Christmas present is not a key driver for any broker with an IQ above room temperature, only for the 1%,” he says. However, the vast bulk of the findings have been welcomed. Australian Finance Group (AFG), along with other stakeholders, notes the value proposition of the broker channel has been recognised, in everything from providing better consumer outcomes (including matching customers with the right loan, and improving their home loan understanding), to injecting competition (including assisting with smaller lender loan distribution and encouraging price competition). As a whole, the industry appears to be asking the regulator to look at the data (by no means a damning verdict on broker practices), value the vital service brokers provide to both customers and lenders, and realise that customers are already protected through a range of measures like the NCCP, lender clawbacks and the banning of exit fees. The industry is also asking regulators to have a little faith in brokers, a point made by White in regard to loan size. “It simply isn’t practically the case at all. We are taking about 20

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$31,000 difference between brokers and bank branches, and there is simply no professional broker in this country who would risk their business for a mere $180 upfront and $46 per annum trail. It’s a ridiculous notion to think they would. “Professional brokers acting under the NCCP do a thorough due diligence and fact find of the needs of the borrower now and in the near future, in order to cater for those needs and to make efficient cost-effective decisions now,” White says. Call to action Flavell thinks brokers should continue to focus on playing their role in the home loan market, rather than worrying about what may or may not happen in the future. As mortgage brokers write over 50% of all new home loans, he says borrowers value the channel. “Borrowers are savvy, they know what they want and they aren’t afraid to vote with their feet if they receive a service that they are not happy with,” he says. “The fact that broker market share continues to grow year after year would suggest borrowers are very happy with the service they receive from the third party distribution channel.” However, others are pushing for

McKeon says any changes to the commission model need to be carefully considered to ensure consumers with different needs are not unintentionally

“Be consultative, open-minded and united as one in a collaborative approach for the right outcome” Peter White, executive director FBAA focused advocacy. Although the industry’s message has been heard to a certain extent, the financial planning industry previously faced a very similar light-touch review from ASIC, before facing the full force of an industrybracing commission ban. AFG executive director Brett

disadvantaged with a one-sizefits-all approach. “We are of the view that any changes to the current standard commission model should not disadvantage consumers who are not vanilla applicants,” he says. “If a borrower has a higher LVR, then a broker will generally need

to do more work to complete a preliminary assessment and identify appropriate products for which the consumer would meet credit criteria. More thought needs to be given to additional metrics that may help to determine fair remuneration for the work done and skill exercised by the broker.” White says the industry needs to work with government constructively to ensure the outcome will be positive for brokers and consumers. “Do not go out and make inflamed emotional slams via blogs at the regulator or the government or associations or aggregators – this will have a serious negative effect for a positive outcome,” he says. “Be consultative, openminded and united as one in a collaborative approach for the right outcome.” AB

A CASE AGAINST COMMISSIONS? Source: ASIC Review of Mortgage Broker Remuneration (2017)

ASIC is concerned brokers could be encouraged to write larger sized loans for larger commissions. Based on data, it found the channel is responsible for larger average loan sizes and more interest-only loans, even after differences in customer types are accounted for. Broker

Non-broker

Loan amount $500,000

$100,000 $0

2012

$420,000

$200,000

$451,000

$300,000

$348,000

$381,000

$400,000

2015

Property value $1,000,000

$400,000 $200,000 $0

$699,000

$667,000

$585,000

$600,000

2012

100%

$780,000

$800,000

2015

Direct average of LVRs

Interest-only loans (as a percentage of total loans)

80% 60% 40%

76%

67%

75%

70%

29%

23% 12%

20% 0

2012

2015

2012

17% 2015

Loan-to-income ratio

4

4.1 3.5

2012

3.8 2015

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PEOPLE

Have an interesting deal? Had a particularly difficult or interesting deal? Why not share it with us, email:

editor@australianbroker.com.au

A BIG DEAL

THE SOLUTION

Smartline’s Kapil Nepal talks about the deal that kept him up at night, how he came up with a last-minute solution on the cusp of Christmas break and why banks need to be upfront with brokers so there aren’t any curveballs

Location: Quakers Hill, Sydney

THE FACTS

Loan size $355,000

Loan term 30 years

My clients knew and trusted my experience. I worked until 1am to prepare the submission and research other banks to send it to. The pressure was on me to get these things approved on time so the client could settle within the deadline. We were up against the clock. The banks would close for Christmas and they were already operating on a skeleton staff. I had to use my network and relationships to find another lender. NAB was the bank that came through, provided we supplied them with some extra documents. This time, I made sure to get something in writing from NAB to ensure the double transfer wouldn’t be an issue. I didn’t want to make these clients the guinea pig; I wanted to absolutely know NAB had no hesitation to accept such dealings. While I have dealt with similar scenarios before, I always knew it was a double transfer in advance. THE TAKEAWAY

Client Young couple, first home buyers

and dusted. It was a nightmare. I was really frustrated and the clients were scared. If we couldn’t settle on time they would lose the land. The clients bought the land a year and a half before, so there was a significant capital gain and a 10% deposit at stake, totalling almost $100,000. I’m a

THE SCENARIO

One of the trickiest cases I’ve dealt with happened around Christmas last year. The clients, a young couple who immigrated to Sydney five years ago, had purchased some land on which they planned to build their dream home. The client had received formal approval for the land loan from one of the major banks. We received the documents, signed them and once the land was registered, we notified the bank. The bank came back to us and said the land was part of a double transfer, which means my clients bought the land from someone who never settled there and who never had to get any finance for the purchase. Before being notified by the bank, I had no idea it was a double transfer transaction. Some banks think double transfers are risky and, as such, the bank said it could no longer do business with us. This bank had previously given the clients approval, it had received their loan documents and everything was done

Goal Land purchase to build dream home

It was not the clients’ fault and it was not my fault. We provided everything upfront; the first bank issued the formal approval and then backed off at the last minute. Double transfers are not good for the property market because they increase speculative situations, where people who don’t receive finance can still buy land. They rely on the fact that the land’s value will go up and they’ll be able to sell it to someone else. The bank approved the loan for my clients and then only checked out the details two weeks before the settlement. The bank needs to let brokers and clients know upfront if it’s a double transfer, because they have all the information. Next time, I would definitely check with the solicitor first. If I’d known it was a double transfer, I would have warned my clients that it could be an issue for some banks and you

“I was really frustrated and the clients were scared. If we couldn’t settle on time they would lose the land” Kapil Nepal

Broker for five years with Smartline Personal Mortgage Advisers Parramatta

MPA top 100 broker with a conversion rate of almost 98%, so I have never had any clients lose the holding deposit because of me. I have a solid track record, so this was like a bombshell for me, especially because of the tight timing. I only found out it was a double transfer two weeks prior to settlement and those two weeks included Christmas break. This is the deal that kept me up in the middle of the night.

have to research and choose the right one. It’s not a black-and-white situation. Banks will accept double transfers on a case by case basis. Now the land is settled and my clients have had their construction loan formally approved. I worked really hard to make this happen. My business is built on trust and my clients trusted me. I didn’t want to fail them. AB www.brokernews.com.au

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PEOPLE

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FROM THE FORUM

Top comments from trending stories on brokernews.com.au

ASIC REVEALS SIX PROPOSALS IN BROKER REMUNERATION REVIEW

MEDCRAFT: “LET’S NOT BLAME THE BROKERS”

The Australian Securities and Investments Commission (ASIC) released its long awaited report into mortgage broker remuneration in March. The regulator outlined six different proposals to alter broker commissions and incentives, including changing the standard commission model to reduce the risk of poor consumer outcomes and moving away from bonus commissions, bonus payouts and soft-dollar benefits. ASIC also suggested making clearer disclosure of ownership structures within the home loan market to improve competition, and improving oversight of brokers by lenders and aggregators.

ASIC chairman Greg Medcraft defended brokers following the release of the agency’s remuneration review, telling ABC’s The Business that “lenders themselves are still responsible for the lending”. Responding to a question about ASIC’s findings that broker-originated loans tended to be higher value, interest only or with higher LVRs, he said the focus should still be on the lender. “Let’s not blame the brokers. They [the banks] are still responsible. They still have responsible lending obligations. Let’s look at not the channel but back to where the lending occurs.”

It will be interesting to see what is in fact implemented. If there are many changes, I suggest mass protest, state by state coordinated. I don’t think anyone at ASIC was working when I was lodging deals at 1am this morning. Maybe they should sit with brokers and see how hard they work for a week and then maybe they would understand the industry better. They have no idea how hard we have to work to run a business, and to want to reduce my income, when there is no public outcry, is shameful. Broker on 16/03/17 at 4:00 PM

As a relatively new broker, it’s hard to get established. Starting from scratch, income is an issue, particularly when it can take up to three months to receive commission to show for the hard work you have done. To announce commission changes without also showing a clear, educated or statistical reason for it makes no sense to me. Have they thought about the sustainability of the industry within their proposal? How are new brokers to join the industry? It’s already challenging enough. New broker on 16/03/17 at 4:12 PM

On a positive note, they have not advocated for a banning of commissions, which frankly would have been the worst outcome. However, this report will result in further uncertainty for brokers regarding the amount of remuneration received, which inhibits future planning and growth. It will now be up to our industry associations and aggregators to take up the fight again. WA Broker on 16/03/17 at 4:21 PM

The greatest benefit that brokers provide to the consumer and business markets is facilitating the increasing competition among all banks and other non-bank lenders. Imagine if there was no broker channel – who would educate the borrowing public of the numerous options for residential and commercial lending? Who would be the conduit to competition? Joe Siragusa on 16/03/17 at 3:51 PM

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I have grave concerns about not paying based on loan amount. I’m not suggesting for one minute that a broker should push for higher loan amounts to get a higher commission, but if commission is based on LVR, for example, would the commission rates increase annually to reflect CPI, at least? Imagine if commission rates stay the same, brokers’ profits would slowly decrease at the expense of lenders’ profits increasing. At the moment, the increased loan amounts based on property value increases over time ensure our income keeps up with CPI. Commission rates haven’t changed for years and have actually decreased over time. Just something to consider! Concerned broker on 21/03/2017 at 10:18 AM

I’m very pleased that ASIC has explicitly noted that it’s the lenders who ultimately make the decision on lending and not brokers. I also find it curious that no one is really asking why the broker channel originates higher value loans! I might speculate that the broker channel (as a pure sales channel) is hungrier to sniff out the higher value loans. Maybe due to our strong referral networks we get to these high value loans before they walk into a bank. But I suspect there is a reason. One thing that is disappointing is that a government body is once again interfering in the free market. Lenders compete for broker business by offering market rate remuneration and for all intents and purposes lenders offer roughly the same commission give or take 10 basis points. But it is rarely about rate and more often about policy, turnaround and interest rate than the commission they pay. As a libertarian, I say to ASIC don’t meddle with the free market. If you are concerned about high LVR, interest-only loans and the lenders that are making these loans, then focus on whether the lenders conduct is appropriate. PJ Patterson, IFBF chairman on 22/03/2017 at 11:14 AM

Now I’m getting somewhat confused, such positive commentary from the head of ASIC, but I can’t see how payments linked to LVR and risk would work or be a fair outcome. Broker on 20/03/17 at 11:19 AM

CAUGHT ON CAMERA The seventh annual Australian Mortgage Innovation Summit – the disrupted mortgage – explored the changing nature of the mortgage industry, current trends and future challenges. The event was held from 23-24 February at the International Convention Centre Sydney and boasted speakers from across the industry, including Bernard Salt, partner at KPMG and columnist with The Australian; Nico de Lange, director financial institutions ratings with S&P Global; Glenn Gibson, head of sales and marketing at AMP Bank; Tim Lawless, research director AsiaPacific with CoreLogic RP Data; Ainslie van Onselen, executive director of RAMS; Alan Shields, co-founder and managing director consulting of RFi Group; and Mark Woolnough, head of third party distribution, ING DIRECT Australia. The conference addressed affordability, risks to future growth, regulatory impacts, digital innovation and barriers to transformation.

Mark Woolnough, ING DIRECT

Nico de Lange, S&P

Tim Lawless, CoreLogic

Glenn Gibson, AMP

Alan Shields, RFi Group

Ainslie van Onselen, RAMS

Bernard Salt, KPMG www.brokernews.com.au

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DATA

VICTORIA

NSW SPOTLIGHT

Burgeoning supply of new units may clip the wings of Melbourne’s economic progress Melbourne’s population continues to grow at a strong rate as job opportunities remain steady. If the population continues to grow at 2% per annum, the state population will increase by more than 1.4 million over the next decade, says Michael Yardney, founder and director of Metropole Property Strategists. “Established homes in Melbourne’s inner and middle-ring suburbs are still in strong demand and are likely to perform well again this year. However, the markets will remain fragmented with the current oversupply of new apartments creating a glut that will limit capital and rental growth in this segment.” In 2016, approximately 18,000 new apartments went onto the Melbourne market. About 16,000 more apartments will be completed in the inner city over 2017 and 2018, adding to the existing oversupply in the CBD, Southbank and Docklands. But Yardney believes there are still some great investment opportunities. MELBOURNE

Houses

Units

$657,500

$495,000

Quarterly growth

6.9%

2.5%

12-month growth

6%

0.5%

Weekly median rent

$400

$375

Gross rental yield

3.2%

3.9%

Median price

WESTERN AUSTRALIA

Economic and developmental issues prevent the capital’s recovery It’s the news that surprised precisely no one: all Australian capitals have now surpassed Perth in terms of annual growth. But the news gets a little worse, according to Michael Yardney, director of Metropole Property Strategists: “It is likely that the Perth market has not yet bottomed out.” “It remains in the slump phase of its property cycle with high unemployment, an oversupply of properties on the market, high vacancy rates and a poorly performing local economy,” he says. The inner-city area of Perth is suffering from unit oversupply, although the level of housing development is still healthy. While the economy of Western Australia as a whole has been slowing and weakening, this may present an opportunity for some buyers who have a risk profile that can withstand investing in a down market, says Nerida Conisbee, REA Group’s chief economist. PERTH

Units

$520,000

$415,000

Quarterly growth

1%

0%

12-month growth

-3.7%

-3.5%

Weekly median rent

$400

$360

4%

4.5%

Gross rental yield

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A strong economic foundation and a surge in infrastructure improvements mean Sydney’s inner city remains a top – if expensive – prospect for well-off buyers has a significant advantage over the other capitals on the east coast: namely, its supply levels. “The Sydney apartment market is not plagued by the same oversupply issues that the other east coast capital cities are suffering,” says Michael Yardney, director of Metropole Property Strategists. “Homebuyers are selecting more carefully now, and their decisions are being driven by lifestyle, with many trading backyards for balconies in well-located apartments in Sydney’s gentrifying suburbs.” That said, he expects dwelling price growth in blue-collar, outer-ring suburbs to disappoint. Tim Lawless, head of research at CoreLogic, adds that Sydney’s listings in 2016 were lower than they were in the previous year, which could be contributing to the lack of supply driving significant increase in property prices. “The highest annual growth rate is evident in Sydney, where dwelling values are now 13.1% higher, reflecting a steeper upwards trajectory in growth over the second half of 2016,” Lawless says. The high prices of dwellings in Sydney have caused investors to miss out on high returns, a sacrifice they seem willing to make for the promise of gains. Along with Melbourne, Sydney has the lowest yield profile among all the capitals in terms of detached housing, while that of Sydney’s unit market fell below Melbourne’s. “Affordability constraints are creating high barriers to entry, particularly in Sydney, and lenders are becoming more cautious in SYDNEY

BROKER PERSPECTIVE

The Northern Beaches remain a hot place to buy – even being described as a frenzy of late. Demand continues to push prices to staggering heights Less than stellar properties are flying off the market. A single-bedroom flat with no view and no garage in Fairlight sold for $255,000 over asking, topping out at $955,000 at the auction. A three-bedroom single-storey townhouse in Allambie Heights – popular among downsizers – sold for more than $1.8m after seven sets of bidders drove the price up on auction day. Valuations are not able to predict these sorts of pricing increases. The crushing competition is making it hard for first time buyers to come out of these auctions successful. Without a large deposit or assistance from mum and dad, some locals are looking further afield, to places like Newcastle, Bulli and Wollongong. Regardless of how steep the competition, there are always options. Right now, there is a lot of chatter about how the soon-to-be constructed Beaches Link and Western Harbour tunnels will impact the area. Lana Moy Personal mortgage adviser, Smartline Personal Mortgage Advisers Mona Vale

TOP PERFORMING SUBURBS IN NSW

Houses

Median price

SYDNEY CHARGES AHEAD

SUBURB

Source: CoreLogic

QUARTERLY

12-MONTH

WEEKLY MEDIAN

GROSS RENTAL

TYPE

MEDIAN PRICE

GROWTH

GROWTH

ADVERTISED RENT

YIELD

Bawley point

H

$562,750

4%

19%

$1,423

13%

Broulee

H

$452,500

3%

3%

$875

10%

Tomakin

H

$391,500

2%

7%

$650

9%

Sapphire Beach

U

$241,750

2%

4%

$400

9%

Casino

U

$159,000

5%

-14%

$260

9%

OPPORTUNITIES AND KEY INFRASTRUCTURE

their lending practices,” Lawless says. “Buyer enthusiasm could be muffled by speculation that interest rates may rise late in 2017, with fixed rates already starting to edge higher.” The reduced demand could curb growth, and has caused the rental market to suffer as well. “With rental markets remaining soft, it is likely there will be further yield compression across those markets where residential

property values are rising,” Lawless says. Despite this disadvantage, however, investors remain hungry to break into the Sydney market, with low yields “no deterrent to investors”. ABS housing finance data shows a consistent rise in finance commitments for investment purposes since May 2016. “Clearly investors are continuing to see housing as the preferred investment option, despite low yields and a mature growth cycle,” Lawless says AB

NSW PROPERTY PERFORMANCE SYDNEY

Source: CoreLogic

Houses

Units

$960,000

$710,000

Quarterly growth

8.1%

4%

12-month growth

3%

4.1%

Weekly median rent

$500

$490

Gross rental yield

2.7%

3.6%

Houses

Units

$430,000

$359,975

Quarterly growth

2.4%

3.1%

12-month growth

5.4%

3.5%

Weekly median rent

$350

$325

Gross rental yield

4.2%

4.7%

Median price

REGIONAL Median price

SUBURB TO WATCH: SEAFORTH

Source: CoreLogic

Houses

Units

$2,183,095

$1,343,587

12-month growth

1.4%

8.3%

3-year growth

40.7

64.5%

5-year growth

59.1%

72%

3.3%

3.5%

Median price

Indicative gross rental yield

Tunnel connection NSW government has released proposed routes for the Beaches Link and Western Harbour tunnels

Science school Construction on a dedicated science school in western Sydney is set to begin this year

Hospital redevelopment Next stage of $200m Hornsby Ku-ring-gai Hospital redevelopment under way

Riverina Murray New 20-year plan aims to make the Riverina Murray region a vibrant economic hub

QUEENSLAND

Capital growth may be stunted as apartment oversupply risks cast a shadow over Brisbane’s future Oversupply is a risk in the Queensland capital market – over 9,000 apartments were completed in 2016 – which is expected to limit Brisbane’s prospects for a few years. “Higher unit supply is progressively weighing down the capital gains across the sector. [This] trend can be seen in Brisbane, where the supply of units across key inner-city regions is high,” says Tim Lawless, head of research at CoreLogic. Most of these apartments are in the CBD, city fringe and inner suburbs, adds Michael Yardney from Metropole Property Strategists. “Even though forecast completions will decrease over the next few years, the current oversupply will limit capital growth and rental growth for a number of years,” he cautions. Nevertheless, the broader housing market should still perform reasonably well for now, driven by affordability and a boost in employment. BRISBANE

Houses

Units

$519,000

$401,000

Quarterly growth

1.3%

-0.7%

12-month growth

3.8%

-2.4%

Weekly median rent

$410

$385

Gross rental yield

4.1%

5%

Median price

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27

DATA

NORTHERN TERRITORY

CAPITAL CITY AUCTION CLEARANCE RATES

Weekly median rent

$350

$300

Gross rental yield

4.2%

4.5%

AUSTRALIAN CAPITAL TERRITORY

MEDIAN HOUSE AND UNIT PRICES

The inner-city market in Canberra continues to deliver in 2017

$1,000,000

CANBERRA

$400,000 $300,000 $200,000 $100,000 $0

CAPITAL CITY

$645,000

$429,000

Quarterly growth

5.5%

0%

12-month growth

4.4%

0%

Weekly median rent

$470

$395

Gross rental yield

3.8%

4.8%

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ADELAIDE

57.4%

Reported auctions

94

Sold

54

Not sold

40

Perth

Hobart

Darwin

Units

Canberra

CAPITAL CITY HOME VALUE CHANGES

Units

28

16

Sydney Melbourne Brisbane Adelaide

Houses

Median price

$620,000

$500,000

$700,000

$700,000 $600,000

$740,000

$800,000

Canberra has been one of the strongest performers in the Australian property market over the last 12 months, and that trend seems set to continue. While inner-city homes are still the top choice for buyers, the positive turn in the market has not just been limited to the CBD, but has extended to properties in the outer ring, likely due to their lower prices. “We have seen such a strong demand for detached houses,” says Nicola Powell, data scientist for Allhomes. “That has really helped push up the prices and resulted in more homes sold by auction.” Powell attributes the recorded increase in sales volumes to low interest rates, since loans have become cheaper to obtain for buyers in the last few years. While Powell expects interest rates to increase, the shortage of quality stock should sustain the market as demand continues to surpass supply.

Not sold

Houses

$940,000

$900,000

26

$403,600

2.6%

Sold

$628,000

3.3%

42

$340,000

12-month growth

61.9%

$520,000

-5.4%

4

$325,000

0.1%

Not sold

$381,000

Quarterly growth

2

Reported auctions

$510,500

Units $350,000

Sold

PERTH

$430,750

Houses $435,500

Median price

CoreLogic collected results for the majority of the capital city auctions held the week of 13-19 March. Based on these results, the combined capital city auction clearance rate was recorded at 74% across 2,916 auctions, the lowest in five weeks. Although auction clearance rates fell, they remain much higher than they were at the same time last year. Melbourne’s auction clearance rate fell from 79% the previous week to 77% last week, while auction volumes rose to 1,441 from 385. In Sydney, clearance rates also fell from 77% to 76%, while auction volumes increased from 803 the previous week to 1,001 last week. Canberra, Perth and Tasmania recorded higher auction clearance rates last week compared to the previous week, while all other regions analysed recorded a fall in clearance rates over the week.

$325,000

MELBOURNE

6

WEEK ENDING 19 MARCH 2017

$385,000

Adelaide’s property market is in relatively good shape, with low prices being the main driver of demand in this capital. “South Australia is one of the few states where supply and demand have been closely aligned, which means that the buying and selling of property has been steady,” says Charles Tarbey, chairman and owner of Century 21 Australasia. “It is the sort of marketplace that would be good to see across the rest of Australia.” Adelaide reported 4.2% annual growth in property prices over 2016, indicating a consistent stream of demand. This level of demand has been met thus far by existing stock. “South Australia is a marketplace that has seen a good, strong supply of property, especially in the outlying areas due to subdivision and development,” Tarbey says. Choice suburbs in the city include Torrens Park, Walkerville and Mile End.

$506,000

Despite limited growth drivers, cheap suburbs are the hotspots

Reported auctions

$421,000

SOUTH AUSTRALIA

33.3%

WEEKLY CHANGE

MONTHLY CHANGE

YEAR TO DATE CHANGE

12-MONTH CHANGE

Sydney

0.3%

2.2%

5%

18%

Melbourne

0.1%

3.7%

4.3%

14.7%

Brisbane

0.5%

0.3%

0.7%

4.9%

Adelaide

0.5%

1.1%

1.9%

3.1%

Perth

0.1%

1.1%

-0.6%

-3.4%

COMBINED 5 CAPITALS

0.2%

2.3%

3.6%

12.7%

*Brisbane results are for the combined Brisbane and Gold Coast region. The monthly change is the change over the past 28 days.

BRISBANE

50%

Reported auctions

MELBOURNE

Source: CoreLogic

142

Sold

71

SYDNEY

76.8%

Not sold

71

Reported auctions

907

Sold

697

Not sold

210

CANBERRA

77%

72.9%

Reported auctions

1337

Reported auctions

Sold

1030

Sold

78

Not sold

29

Not sold

307

HOBART

Houses

Units

$381,000

$278,275

Quarterly growth

4.4%

-4.0%

12-month growth

1.9%

0.3%

Weekly median rent

$350

$290

Gross rental yield

4.8%

5.4%

Median price

66.7%

Reported auctions

15

Sold

10

Not sold

HOBART

107

5

TASMANIA

The Apple Isle looks to be a new hotspot Hobart continues to perform admirably after a considerable rise in property prices in 2016. Hobart is fourth among the nation’s capitals in terms of fastest average selling time, according to CoreLogic’s head of research, Tim Lawless, indicating how demand has risen in this region. This could be attributed to the limited number of listings on the market. “Lower stock levels are likely to be one factor contributing to the upwards pressure on dwelling values,” Lawless says. “Vendors are still very much in the driver’s seat in these markets and buyers have little in the way of leverage to negotiate, or time to consider their purchase decision.” Hobart’s high yields are also sure to get the attention of investors.

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29

PEOPLE

IN THE HOT SEAT Greg Collins, director of FirstPoint Mortgage Brokers, chats about lenders’ changing appetites, banking the next generation and what he’d do as Malcolm Turnbull for a day Who or what inspired you to become a broker? An old colleague of mine who sold finance and insurance in A the motor vehicle industry made the transition into mortgage broking. In 2000, it was still a fairly new industry. He encouraged me to take a look because he thought it would suit me. I loved that the industry was still emerging and finding its feet in the marketplace. Mortgages are something almost everybody needs and, as we represent all brands as brokers, it didn’t take long to realise moving into the industry was a no-brainer.

Q

What will be the biggest challenges in the broking industry this year? The changing appetite of some of the lenders around what they A want on their books going forward. A perfect example is CBA being no longer willing to refinance investment property. Brokers are going to have to be more flexible in who they use or who they do business with. I’ve seen it all before, and it normally opens up an opportunity for the non-bank sector to make a resurgence and fill the gaps some of the big players are presenting.

Q

What has been your most memorable moment working as a broker? Over the last 16 years, I’ve had a lot of memorable moments. A I’ve been able to settle a single transaction to the value of $42m. I’ve built up long, trusted relationships with clients – to the extent that I’m now banking the next generation with their kids becoming first home buyers. I get a real kick out of all this. Possibly one of the most memorable moments was starting FirstPoint Mortgage Brokers with two of the best blokes and partners in the industry: Troy Phillips and Brett Hartley. It will be 10 years this April, and that’s a real standout achievement and something I’m really proud of.

Q

If you could be prime minister for a day, what would you do? If I was prime minister for a day, I’d do something about A addressing first home ownership. Stamp duty is currently one of the biggest upfront costs, and it’s a barrier to people buying their first home or needing to move in order to upsize or downsize. It makes up a large piece of the average upfront costs faced by first home buyers (with the deposit, mortgage insurance and moving and legal costs among the other major expenses). I’d also look at reinvigorating country Australia, and try and get at least some consensus on important issues like education, hospitals and aged care. I’d also ban all reality TV!

Q

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