Australian Broker 15.04

MARCH 2018 ISSUE 15.04

When borrowers go broke The facts behind the recent rise in bankruptcies /16

Borrowing abroad Broker comes to the rescue of an Australian in Dubai /22

TONY MACRAE Westpac’s group GM of third party distribution reveals how the big four bank is capitalising on the power of customer outcomes /14

The customer is always right The global perspective on financial reform /20

ALSO IN THIS ISSUE …

Major Bank Roundtable Behind-the-scenes action from MPA’s annual debate /25 Brenden Lowbridge Businessman and marathon runner /30 Movers and shakers The latest appointment news /21

NEWS

IN THIS SECTION

Lenders US investment giant buys non-bank /04

Aggregators Broker fees under the spotlight /06

Market RBA: Mortgage stress “not acute” /10

Regulators Brokers urged to help combat CCR fears /12

Technology NAB’s response to digital includes branch changes /08

www.brokernews.com.au MARCH 2O18 EDITORIAL Editor Melanie Mingas News Editor Manuelita Contreras Journalist Nicola Middlemiss

DATES TO WATCH

Upcoming can’t-miss events

Production Editor Roslyn Meredith

ART & PRODUCTION Designer Martin Cosme

THROUGHOUT MARCH

6 MARCH

6-7 MARCH

FBAA Summits

Property Law Forum

Philip Lowe takes the stage

The FBAA will hold its Queensland Gold Coast Summit on 6 March, followed

by NSW/Vic on 20 March, Queensland on 22 March and Victoria on 27 and 28 March. Each half-day summit will cover the latest industry opportunities and challenges.

For those who want to brush up on their legal skills, the University of NSW Canberra will run this one-day masterclass at the Grace Hotel, Sydney. The latest instalment in the quarterly series will cover key trends and concerns in property law.

A keynote address by Governor Philip Lowe will kick off day two of the AFR Business Summit in Sydney. Other speakers on the highly anticipated agenda include Bill English, former PM of New Zealand.

Production Manager Alicia Chin Traffic Coordinator Freya Demegilio

SALES & MARKETING Sales Manager Simon Kerslake Marketing and Communications Manager Michelle Lam

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

Melanie Mingas +61 2 8437 4792 Melanie.Mingas@keymedia.com

SUBSCRIPTION ENQUIRIES

13–15

MARCH

16 MARCH

22 MARCH

APAC Blockchain Conference

Anti-Money Laundering Conference

Australian Young Finance Professionals Awards

Taking a look beyond the hype, the second Blockchain Conference will be held in Melbourne and will feature speakers from the OECD, the London School of Economics, ASIC, Austrac, Westpac, ANZ, Blockchain Australia and the National Stock Exchange of Australia.

This one-day event at the Radisson Blu Plaza Sydney will teach professionals in the finance and banking industries how to spot signs of such criminal activities as laundering and fraud, in addition to presenting the latest tech innovations in the sector, including AI and virtual currencies.

In partnership with FINSIA, the awards event for Australia’s best young finance professionals returns in March.

Now in its fourth year, it features nine categories and is open to any finance professionals aged 35 or younger.

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

ADVERTISING ENQUIRIES

Simon Kerslake +61 2 8437 4786 simon.kerslake@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

31 MARCH

11 APRIL

16 APRIL

T-day

Global Digital Banking Conference, New Zealand

AltFi Australasia Summit 2018

The latest instalment in the global series, the New Zealand edition of the conference follows on from events in Dubai, Sydney, London and Toronto and will cover open banking, app and IoT development, fintech and regulatory changes.

The third AltFi summit explores all things alternative in the finance world, including alternative lending, the peer-to-peer space, marketplace and direct lenders, equity crowdfunding, challenger banks and robo-advice. Noah Breslow, CEO of OnDeck, will deliver a keynote address.

If they haven’t already, companies and super funds with a total income in excess of $2m in the last year need to pay their tax bill before the end of March – and Easter weekend runs from 30 March to 2 April!

2

www.brokernews.com.au

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 LENDER TOPS APAC HIGH-GROWTH LIST small business lender Prospa has topped the Financial Times 1000 High-Growth Companies AsiaPacific 2018 list. Demonstrating the highest percentage growth in revenues between 2013 and 2016, Prospa experienced accelerated growth over the past year, having lent more than $500m to SMEs. Prospa was reported last month to be listing on public markets this year and is said to be looking for new investors ahead of a planned IPO. ONLINE

CHANGE IN DWELLING VALUES OVER 5 YEARS TO JANUARY 2018 Source: CoreLogic Property Pulse, February 2018

National

37.7%

Combined rest of state

18.4%

Combined capitals

43.5%

Regional NT

-4.6%

Regional Tas

16.4%

Regional WA

-19.8%

Regional SA

-1.7%

Regional Qld

9.0%

Regional Vic

21.1%

Regional NSW

37.9%

Canberra

15.9%

Darwin

-20.0%

Hobart

33.4%

Perth

NON-PROFIT PROVIDER SURPASSES $10M largest provider of no-interest loans in NSW has issued more than $10m in microfinance loans, in partnership with NAB and the NSW Office of Fair Trading.

BaptistCare said the total value of loans issued had increased by more than $7.5m in two years, from around $3.5m in June 2016 to more than $10m in December last year. In 10 years, the organisation has issued more than 8,400 low-interest loans.

Tony Carn Sales director, NextGen.Net

4

www.brokernews.com.au

18.4%

Brisbane

20.1%

Melbourne

56.4%

Sydney

THE

“From the lenders’ standpoint, eSign makes their job far easier and smoother because they can verify that applications are signed when they receive them”

-4.4%

Adelaide

64.4% -40%

-20%

0%

20%

40%

US INVESTMENT GIANT BUYS NON-BANK Bluestone Mortgages Asia Pacific confirms Cerberus Capital Management has acquired the company, which arranges 96% of its loans through brokers lender Bluestone Mortgages Asia Pacific has been acquired by US private investment firm Cerberus Capital Management. Parent company Bluestone Group UK will fully divest its interest in the AsiaPacific business as part of the deal.

The acquisition comes more than four years since Bluestone returned to the Australian mortgage market after pulling out during the GFC. Generating around 96% of its loans through brokers, Bluestone has written over $1.3bn in mortgages since 2013, and has more than $8bn in loans under management.

According to a statement, Cerberus Capital Management plans to use its purchase of Bluestone as a springboard to SPECIALIST

expand into the Asia-Pacific. The investment firm has US$30bn in assets under management and invests mainly in distressed securities and assets, private equity, middle-market lending, and real estate.

The Australian Financial Review quoted a Cerberus spokesperson as saying the investment firm was looking at further opportunities in company platforms and assets in the lending and real estate sectors.

The transaction follows two acquisitions of mortgage lenders by global private equity firms last year.

Blackstone became a majority stakeholder in La Trobe Financial in December after taking an 80% stake in the non-bank lender.

A month earlier, Pepper Group

60%

80%

shareholders approved the takeover of the company by a unit of KKR Credit Advisors.

Bluestone Asia Pacific CEO Campbell Smyth said the company’s day-to-day operations would remain unchanged and its current management and staff would continue to run the business.

“This is a great moment for the business, and the whole team is embracing the investment by Cerberus,” said Smyth. “The transaction will enable the company to actively evolve its product portfolio and service offering. In the short term, the company will focus on actualising a number of imminent expansion options that meet the demands of emerging sectors.”

Smyth said the company would be in a position to “aggressively capitalise” on future opportunities.

“The net effect of this growth model will be more options for brokers and borrowers alike,” he said, adding that the transaction was a win for all involved.

NEWS

A G G R E G AT O R S AGGREGATOR’S HOME LOAN BOOK HITS $6.5BN aggregator AFG has confirmed that AFG Home Loans’ settlements grew 31% (to $1.62bn) and its loan book increased 40% (to $6.5bn) in the first half of the 2018 financial year, compared to the same period last year. AFG Home Loans has serviced more than 17,000 retail customers and now accounts for 8.7% of AFG’s total residential settlements – up from 7.8% in FY17, said the group. Lodgments for January 2018 were up 7% year-on-year.

NATIONAL

NDB PRIVACY LEGISLATION ROLLED OUT and other businesses must now disclose data breaches that put customers at “serious harm”, under the Notifiable Data Breach (NDB) scheme. Introduced on 22 February, the new regulations place greater focus on cyber security, following high-profile hacks on Equifax, HBO and Uber, to name a few. Companies found to have lost or compromised sensitive data without informing those it belongs to can now face fines of up to $2.1m.

AGGREGATORS

BROKER FEES UNDER SPOTLIGHT

businesses was 0.54%.

For more recent figures, the Productivity Commission turned to the MFAA, which for the period October 2016 to March 2017 estimated average gross upfront commission of $76,827 per broker per annum, prior to costs.

Despite the findings, the report lamented a widespread shortfall in publicly available information on “the aggregate number of brokers operating under a franchise” and the total number of mortgage aggregators owned by ADI lenders.

Reacting to the news, Connective director Mark Haron told The Adviser, “The size and significance of the broker network is a really key thing to making lenders and the home loan market much more competitive.

The amount of business done by brokers to non-banks has significantly increased. Those non-banks would struggle to operate in a market if there weren’t brokers out there selling and promoting their loans.”

Aggregator boss warns competition could suffer as two commissions target broker fees and payments as an area of inquiry idea of consumers paying brokers for their work is far from new; however, recent questions posed by the Productivity Commission and the Hayne banking royal commission have reopened the debate.

In a 640-page document released last month, the Productivity Commission explored the issue as a solution to current practices, with specific reference to eliminating conflicts of interest in the commission system. Its findings are based on data from 2002, 2007, 2012 and 2017. A second background paper from the Hayne royal commission observed that current payment systems reduce transparency.

Citing numerous scenarios, the Productivity Commission claims THE

such conflicts are “especially apparent” when lenders fund white label products through aggregator subsidiaries, in addition to other scenarios.

According to ASIC-conducted reviews, lenders paid approximately $1.42bn in upfront commissions on $175bn in home loans in 2015 (0.81% of home loans) compared to $729m on $98bn in home loans in 2012 (0.74% of home loans), representing an increase in commissions as a percentage of home loans between these years.

According to ASIC data, in 2015 the average rate of upfront commission paid by lenders to aggregators was 0.62%, and the average rate of upfront commission passed on by aggregators to broker

“Without the [broker] distribution network,nonmajor lenders would simply not be able to compete, and the competitive nature of mortgage pricing would not exist” David Bailey Chief executive, AFG

VV$40,614,829,064 THERE MAY BE TROUBLE AHEAD: IO IN NUMBERS Source: APRA, RBA

Interest-only housing loans 80%

Total

Owner-occupier

Investor

60% 40% 20% 0%

6

2011

2016

2011

2016

2011

2016

Share of loan approvals*

* Interest-only housing loan approvals as a share of total housing loan approvals

Share of outstanding debt**

** Outstanding balance of interest-only housing loans as a share of total outstanding housing loans

www.brokernews.com.au

NEWS

TECHNOLOGY

20-MINUTE MORTGAGE (ALMOST) A REALITY start-up Xinja has received an Australian credit licence from ASIC and plans to offer home loans in the next few months. Creating what it calls “Australia’s first independent 100% digital bank”, Xinja promises approved loans in 20 minutes. An equity crowdfunding offer launched in January has raised $1.4m to date.

This is the first of three licences to be received by Xinja, which has also applied for a financial services licence and a banking licence.

FINTECH

NAB PLANS BRANCH CHANGES AS DIGITAL TIGHTENS GRIP Chatbots for business customers and a fresh approach to the branch network are just some of the plans revealed by executives CEO Andrew Thorburn has spoken about the bank’s plans to implement an “adapt and invest” strategy across its branch network, as more customers turn to technology to meet their banking needs.

Speaking in a radio interview in February, Thorburn maintained the bank would still open new branches; however, he said this would be closely linked to customer demand, which has fallen outside of major urban centres.

“There is a policy to adapt and invest where our customers need us to be, and the end result of that will be that some branches get used more and some will get used less, and we just deal with that as a business should,” he said.

NAB

Observing a general shift away from the traditional bricks and mortar model, he revealed that NAB had earmarked $1.5bn a year, up 50% on current investment levels, as technology continues to disrupt and transform business plans.

“Our business is going through dramatic change, and our customers are demanding simpler and faster services as part of their lives, whether they’re businesses or individuals, and we have to respond to that,” he said.

The interview followed a November 2017 speech by executive general manager of business transformation Anne Bennett, in which the company’s strategy for a digital age was outlined publicly.

“We need to make NAB simpler and faster. To do this we have torn up the rule book on the way we have traditionally done things.

We have recognised that our workforce needs to adapt and evolve with the necessary skills and experience that the digital age needs,” Bennett said.

Included in the plans, NAB will roll out chatbots and digital assistance to provide customer service on demand for the bank’s 450,000 business account holders, based on similar technology to that used to power Siri and Alexa.

Adopting the uber model, recent innovations include HICAPS Go, a mobile app for consumers to find and book an Allied Health practitioner, get an upfront quote for their consultation and process the payment. Earlier this year, NAB partnered with realestate.com.au to combine property searches and home loan processing to create a one-stop shop that ensures buyers at auction have access to the funds required for their purchase.

TECHNOLOGY USED BY SALES PROFESSIONALS

Collaboration tools Networking platforms Enterprise communication CRM tools Sales intelligence tools Productivity apps

Total

Email tracking tool

Top salespeople

No technology used

8

www.brokernews.com.au

10%

one third of millennials surveyed for Viacom’s Millennial Disruption Index said they expected to be “bank-free” in the near future. As Australian banks race to digitise services, 75% of millennials surveyed said they would prefer to use financial services provided by start-ups and tech giants such as Apple and Google. Additionally, 71% of respondents to the Viacom survey said they would rather go to the dentist than listen to what their bank was saying.

ALMOST

Source: Business Insider Australia

0%

MILLENNIALS PREFER BANK-FREE FUTURE

20%

30%

40%

50%

NEWS

MARKET RBA: MORTGAGE STRESS ‘NOT ACUTE’ to financial institutions and stability from household mortgage stress are “not acute at the moment”, RBA assistant governor Michele Bullock has said.

Speaking at a lending summit in Sydney, Bullock maintained that 75% of households with owneroccupier debt have mortgage payments of 30% or less of income.

Bullock’s remarks run counter to figures cited elsewhere, which highlight increasing difficulties across Australian households.

(Turn to page 16 for more) RISKS

BROKERS WON’T BRING MARKET SHARE has advised CBA and Bendigo Bank against turning on the “broker taps” to win market share, saying broker loans are higher-risk than proprietary loans. In its latest Australian banking update, UBS called recent moves by CBA and Bendigo Bank “prudent”, as they refocus on proprietary channels at the expense of mortgage brokers. Both banks have capped new interest-only lending at 30% of total new residential mortgage loans.

UBS

“Brokers are constantly adapting to meet the changes ahead with the single focus of continuing to provide an excellent and personal service” Mike Felton MFAA, CEO

IMF PREDICTS MIXED OUTLOOK FOR HOUSING Australian house prices in for a soft landing according to latest IMF statement, although commercial banks’ housing exposure is ‘substantial’ IMF has forecast a “soft landing” for Australian house prices, confirming that a “sharp price correction” is unlikely, given growing population rates and the controlled supply of new residential units.

House prices in the major eastern capital cities of Melbourne and Sydney have risen sharply over the past few years, driven by lower interest rates, high population growth and foreign investor interest, and amplified by legacy supply constraints. However, the IMF reiterated that the market was still between 5% and 15% overvalued and banks were “substantially exposed” in housing.

In its February 2018 country report, the IMF stated: “Standard THE

metrics indicate house price overvaluation in the order of five to 15% at the national level, and household debt ratios are high by international comparison.

Commercial banks’ housing exposure is substantial at over 50% of total assets.”

While the baseline outlook assumes a soft landing in the housing market, these factors, in addition to the financial health of individual households, could turn things sour.

Regarding the former, there is “considerable variation in balance sheet health” across Australian households and, regarding the latter, a backdrop of overvaluations means a period of cooling could be “less benign than in the baseline

projections”, the IMF said.

Specifically, “there is potential this will entail the non-completion of large apartment projects already approved and tentatively pre-sold on deposit, lower dwelling investment, and a larger house price correction than under the baseline, with corresponding negative aggregate demand effects,” the report continued.

Despite the warnings, a sharp price correction is unlikely to be on the horizon, given robust underlying demand from strong population growth and little evidence of a rising inventory of new residential units.

In the short term, household credit and debt growth are both forecast to align with household income as house price increases slow. This reflects a combination of increased supply after stronger residential investment and demand shifts towards renting, as rental rates have become relatively more attractive, and, eventually, higher interest rates.

VV$40,614,829,064 REAL GDP AND DEMAND COMPONENTS Source: Haver Analytics and IMF staff calculations

2000 Q1 = 1 (logs) 0.7 0.6 0.5

GDP

0.4

GDP 2001–8 trend counterfactual

0.3

Domestic demand

0.2

Export G&S

0.1 0.0 -0.1 2001

10

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2003

2005

2007

2009

2011

2013

2015

DIVERSIFICATION UPDATE

HOUSING MARKET FORECAST 2018 Source: Westpac Housing Consumer Sentiment Index

1

Victoria

IT’S TIME TO SETTLE THE SCORE Last year OnDeck helped over 4,000 Australian small businesses to discover their business credit score, via its free scoring tool knowyourscore.com.au

Moderate slowdown/some stabilisation 2

Queensland

Sluggish with modest improvement 3

Western Australia

Strong signals but no positive turn 4

South Australia

Lacklustre with activity stalling 5

Tasmania

High chance of strong rebound in activity

SYDNEY PRICE GROWTH TO DIP published by analysts at Westpac indicates that annual price growth in Sydney will decline for the first time in five and a half years in 2018, after what it describes as a “significant slowdown” in the market over the last 12 months.

Cited factors include macroprudential restrictions, weaker foreign buyer demand, stretched affordability, and a lift in supply.

Elsewhere, the outlook across NSW, Victoria and Queensland remains mixed.

The report read: “With policy unlikely to provide a boost, 2018 is shaping as a critical test of the market’s resilience.”

DATA

While credit scoring and ‘knowing your score’ has been part of the US landscape for many years, it’s relatively unknown in Australia. “Evidence of this was a survey we conducted last year with MYOB, which that found over 90% of businesses did not know their credit score,” says OnDeck’s head of sales, Michael Burke. “This means that many small businesses are essentially flying blind and not getting a true picture of the health of their company.”

Why is a credit profile important to a business?

• Keeping on top of the business’s credit score and profile can help an owner gain insight into the financial health of their business.

• A solid credit profile can help lenders predict the business’s future actions, based on recent credit history.

• This could help the business become a stronger candidate for business financing.

While the business owner should be aware of their business’s score and their overall financial situation, their broker can also play a part.

OnDeck’s KnowYourScore platform is a business-only solution that provides the business owner (or broker) with an up-to-date credit score in seconds. The service is safe, doesn’t leave a footprint (unlike a credit report pulled during a lending application), and it’s free. The program is powered

by Equifax, one of Australia’s biggest credit bureaus. Equifax business credit scores range from 1 to 1,200 and are

calculated using the information on the business credit file. This score aims to help SMEs (and their brokers) to fully understand the financial ‘DNA’ so that they can make an informed decision about their financing options and determine whether they will receive favourable terms from financiers and suppliers.

Different lenders will have different thresholds based on their risk appetite and how the loan is secured (OnDeck’s minimum credit score is 500).

Through KnowYourScore, OnDeck has provided business credit scores to businesses from a broad spectrum of industries, with real estate, cafes and restaurants, professional services and tradies being among the most prevalent. The typical business has less than 10 employees. The typical credit score is 769 and 80% of businesses score ‘good’, ‘very good’ or ‘excellent’.

Ultimately, credit data is a very powerful tool for a broker to make decisions – as much as it is for the lender or the customer. “We’ve provided thousands of business credit scores since we launched the program; that’s a lot of business owners and brokers who now have a better handle on their financial situation and whether or not a business loan is an option for them at this point in time.

When we look at the quality of scores obtained, business owners shouldn’t be nervous about finding out this information.”

To learn more about business credit scoring and find your business’s score, visit knowyourscore.com.au.

NEWS

R E G U L AT O R S

LENDING RESTRICTIONS CONSTRAIN BANK’S GROWTH recording 4.5% growth on its loan book in the first half of the 2018 financial year, MyState claims its results were capped by regulations on interestonly and investor lending.

Managing director and CEO Melos Sulicich told Australian Broker that the bank’s investor lending book was growing at around 5% annualised, while its interest-only book was growing at about 20%.

Both rates are below APRA’s caps of 10% for investor lending and 30% for interest-only lending.

DESPITE

BROKERS URGED TO HELP COMBAT CCR FEARS Uniquely placed and in demand, CCR is expected to give brokers a chance to shine as customer-centric reforms are rolled out lender RateSetter has called on brokers to help combat misunderstanding and fear about changes in credit reporting.

According to the firm’s own research, only one third of people have any knowledge of the impending changes to how records are shared. Further, for CCR to achieve positive outcomes, consumer awareness needs to improve “significantly”, given that 67% say they are unaware of these changes.

“Although it took mandatory regulation to bring the big four to the party, we applaud NAB for being the first of their peers to take the leap into CCR,” said RateSetter CEO Dan Foggo.

PEER-TO-PEER

COMPETITION REPORT SUFFERS ’90S NOSTALGIA its claws, the Productivity Commission has claimed that “nothing obliges [brokers] to act in their clients’ best interests” and growth in the sector has failed to increase competition. In the draft report released in February, the commission said the market did not resemble one that was “fully competitive as it once did in the 1990s”, adding that “financial incentives are skewed in favour of the banks that pay them”.

The big four will be required to hand over half of their CCR data by July, and 100% by mid-2019, with failure to comply leading to huge penalties. Treasurer Scott Morrison has promised “strong commercial incentives” for smaller lenders to participate in future.

“Now the job of the government and the financial services industry is to communicate the benefits of CCR so people are encouraged to shop around for a better deal on borrowing,” Foggo continued.

However, FBAA executive director Peter White said banks themselves had to take responsibility for explaining changes to their customers.

“Under the Consumer Law, it’s not the brokers that are required by

the NCCP to do that,” he told Australian Broker.

“At the same time, brokers need to ensure they are knowledgeable about CCR and the issues around it because they are dealing with credit matters. They have to work closely with lenders to understand what the lenders are saying,” he said.

Regardless of where the line falls, White remains sceptical about the overall consumer benefits of CCR. In an interview last month, he said, “Banks will maintain their current interest rate margins for customers with a better credit file and increase the rates for those who have been through past difficulties under the guise of being of lesser quality or higher risk.

“People need to understand that if they don’t pay their bills on time, if they don’t meet their duties and obligations, it has a negative impact.”

The comments sparked a debate among Australian Broker readers, who remain divided on the issue.

For more on this story, seee page 24

HOUSEHOLD INTEREST PAYMENTS RELATIVE TO DISPOSABLE INCOME

SHARPENING

12

www.brokernews.com.au

Source: RBA, AMP Capital

15%

With 3.5% cash rate

13% 11% 9% 7% 5%

Currently 8.9% 1989

1994

1999

2004

2009

2014

2019

REAL WAGES GROWTH... DO WE HAVE LIFT-OFF? Source: ABS, CommSec

Annual percent change 5%

4%

Wages

3%

2%

1%

Headline inflation

0% Mar-09

Mar-10 Mar-11

Mar-12 Mar-13

Mar-14

Mar-15 Mar-16 Mar-17

Mar-18

ASIC REPORT CONFIRMS ONGOING IMPROVEMENTS ongoing review of interest-only loans has found that standards in the lending industry have continued to improve.

Group senior manager of credit Chris Green noted that around 30% of examined loan files in 2015 had no information about borrowers’ requirements and objectives. “In our current review, out of the 300 files we’ve looked at, there are just a handful of files that are ‘poor’.”

Green added that the majority of files were now rated good, indicating a broad increase in industry standards. He called it “a really encouraging message”.

ASIC’S

FE AT URES

SPECIAL REPORT

GETTING TO KNOW YOU Continuing the momentum from its central role in CIF, Westpac is on a mission to help brokers boost their bottom line through education, training and customer relationships. Tony MacRae explains

KEY BUSINESS METRICS

17,500 strong network of accredited brokers

46% of new lending from third party network

6,503 brokers lodged a Westpac deal in the last six months

55,114 customers helped into their homes by Westpac broker partners in FY17

16,542 phone calls made by Westpac BDMs in 2017

14

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200 years in the business in 2017, Westpac knows a thing or two about moving with the times, but even by its usual standards the last 12 months have been exceptionally busy.

Financially, the third party network put in a strong performance. Currently, 46% of the bank’s new lending derives from the channel, creating what group general manager of third party distribution Tony MacRae describes as “a positive growth story and a very solid profitability and revenue story”.

Other headline grabbers include the launch of a new content portal designed to support the ongoing training and development of Westpac’s 17,500-strong network of accredited brokers. A first in the broker space, it comprises Ideas Hub for Westpac and Learning Lab for St. George, BankSA and Bank of Melbourne.

Initially designed to equip brokers with essential tips for navigating best practice processes, as with everything Westpac currently engages in there is an added dimension based on the intangible factors so often ignored.

Today the strategy is to read between the lines in order to boost the bottom line, and it is here that Westpac is truly embracing change.

It applies to everything from broker training to developing a greater understanding of customer requirements and objectives.

In the former it has seen the transformation of online learning into a platform that allows brokers to hear from some of the leading CELEBRATING

thinkers in the marketplace, through articles, webinars and video content.

In the latter, it has inspired the addition of bespoke questions in the online loan application process.

Generated by smart algorithms, they prompt customers to share additional details about their lifestyle and income to match a suitable product. The philosophy is that the better the broker knows a customer, the better the customer outcome.

“We really take the time to understand what the customer is

and recommendations from the Combined Industry Forum, to name a few. Further, in February Westpac tightened its credit assessment policy and approval process. In short, it all boils down to responsible lending, which Westpac has taken a “leadership position” on.

“We obviously need to meet our regulatory obligations, and we are in great shape to do that, which puts us in a position where, when we do understand those needs and requirements, we can pick the best possible outcome for the customer,” says MacRae. Rewriting the rules MacRae is an architect of the concept of customer outcomes, having developed the first official definition with Gerald Foley during the CIF. “To me they’re great words; when you put them into action I think

“If there is a customer going through a stressful transaction, brokers have a role to play in helping them” Tony MacRae, Westpac group GM of third party distribution trying to achieve and therefore put them in the right outcome. It isn’t about driving to pure targets; it is really is about understanding objectives and needs and then determining the right product to meet those in the best possible manner,” MacRae says.

While these advancements respond to the recommendations put forth in recent reports and inquiries, to date Westpac is the only bank embracing them in this way.

The interactive questionnaire supports compliance with such recent developments as comprehensive credit reporting, APRA’s revised lending criteria,

the key is really ensuring that we deliver and stretch ourselves on our responsible lending standards and processes,” he says.

The equally important flip side is devising mechanisms for when that cannot be achieved. Not only can this help the customer through a worst-case scenario but it underpins the concept of self-regulation.

MacRae makes two key observations on how this should play out, with a focus on maintaining transparency and reaching amicable conclusions.

“The first angle is, when a loan goes into arrears in the first 12 months outside of unforeseen life events, there needs to be some

In partnership with

Westpac group GM of third party distribution Tony MacRae

form of penalty or clawback on the broker. That clawback should go to the customer to assist them in correcting their position, as opposed to going to the lender.”

He adds, “The second piece is in linking trail outcomes to ensuring good customer outcomes is not just at the point of sale but ongoing, and we see this in the form of something like an annual review, documented.”

Although happy to share his insight, MacRae isn’t about to prescribe solutions to the industry. Deliberately avoiding the addition of what he terms as “layer upon layer of complexity upon complexity” during the CIF, the

aim now is simply for brokers to extract the data necessary to make informed choices as easily and efficiently as possible.

While the wider industry is free to interpret and implement that as it chooses, Westpac’s new approach to the application questionnaire provides a timely example of striking a balance. Its next step is to introduce “a more granular set of expense categories” to help prompt customers on the information that is so easily overlooked.

Noting the relevance of comprehensive credit reporting, MacRae says: “The real answer here is that we need to get better access to greater information and greater

sharing of information. With that, we can automate a lot of the process and not have to rely on customers being able to account for where their expenses are.”

The data debate To truly understand customers, brokers and their industry peers need data – and not just any kind, but the big kind.

Globally, big data’s value to retail banking is estimated to reach $10bn by 2020, with mining and trend forecasting the most popular methods of analytics.

The information captured can provide insight on spending and saving habits, common

expenditures and even debt management. In Australia such details will become crucial to daily operations; elsewhere it is already used for targeted marketing.

However, collecting data is one thing; keeping it safe is quite another. “We think it’s incredibly important that really strict controls and security exist around data, because we don’t want this falling into the wrong hands,” says MacRae. The banking industry’s primary concerns about data come from a completely different angle in Australia, with tensions raised that non-majors, which account for 20% of lending, are not yet required to comply with CCR. “The experiences we have observed overseas show that CCR really is at its most credible and rigorous when the data is as accurate as possible, and you need all the data to do this,” MacRae says.

While diligent focus falls on the customer, Westpac hasn’t forgotten its brokers. Forming a critical link in the network, broker and third party channels will draw a large share of the bank’s focus in 2018.

The partnership approach will see time invested in Westpac’s business development managers, nurturing them beyond their transactional roles to support closer work with brokers.

For now, the industry is in a strong position, with MacRae crediting the growing momentum that has built over recent years.

Free from major turmoil, this leaves the path clear to focus on what really matters.

As MacRae concludes, “We need to remember throughout all of these transactions and all of the various media attention that we help customers into their homes.

If there is a customer going through a stressful transaction, brokers have a role to play in helping them. That’s a wonderful position to be in, and you have to take great pride in that.” AB www.brokernews.com.au

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NE WS ANALYSIS

WHEN BORROWERS GO BROKE The RBA insists that mortgage stress is limited, yet personal bankruptcies are climbing – up 6.1% in 2017. With implications for banks, brokers and future borrowers, is the trend an anomaly or the start of an economic Armageddon? surge in the cost of everyday essentials, coupled with weak wage growth, caused personal bankruptcies and insolvencies in Australia to rise by 6.1% in 2017, with more than 32,000 cases filed, following a year-on-year increase of 4.7% in 2016. It’s the highest rate in five years.

Not only is the rate of bankruptcy growing, but those filing for it are getting younger, with an average age of 40.9 years compared to 46.7 as recently as 2013. What’s more, representing a 57.4% share of all cases, men are more likely to go bankrupt than women.

“Consumer debt levels are rising steadily in Australia as a result of record mortgages and a surge in everyday essentials such as utilities, petrol and healthcare. These factors, combined with weak wage growth, are putting pressure on the wallets of Australians,” says Simon Bligh, CEO of illion, which published the research.

Further compounding these issues, many areas have suffered catastrophic natural and environmental disasters, straining government budgets and negatively affecting the local economy, impacting on SMEs as well as consumer confidence.

In 2016, two reports commissioned by the Australian Business Roundtable for Disaster Resilience and Safer Communities concluded the cost of social impacts following a natural disaster was 50% higher than originally calculated. illion’s data shows that the highest concentration of bankruptcies was in Queensland, with 9,454 cases filed over the year. There, Cyclone Debbie severely affected business in A

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the tourism and mining sectors, as well as infrastructure budgets.

The scale of the challenge From natural disasters to low wage growth, the rising cost of living and failed business ventures, the

2017 quarter by the Australian Financial Security Authority (AFSA) demonstrated a rise of 8% in personal insolvencies compared to a year previously, with the number of debt agreements rising to a record high of 3,885, comprising 47.4% of

“Economies expand and contract at various stages. We have seen slowdowns and recessions but never a meltdown” Greg Cook, Loan Market reasons for filing are complex, and Australians aren’t alone. Other top 20 world economies with rising rates of personal bankruptcy last year included the UK, up 9.4%, and Japan, up 6.4%.

Data published in the September

total personal insolvencies.

However, bankruptcies increased just 0.1% during this quarter.

“The rise in personal bankruptcies is concerning and, while no one likes to see these figures trending upwards, we need to keep in mind

that they are low compared to the size of the Australian population.

Over the last few years there has been phenomenal growth in lending, especially mortgages, which when combined with low wages growth, reduced working hours or loss of employment and the continual rise in the cost of living, there comes a time when something has to give,” says Peter Ellis, founder and borrowers’ advocate at Lending Mate.

A closer look at the AFSA data shows that just 16.1% of debtors declare bankruptcy for businessrelated reasons, with economic conditions the most cited factor for business-related cases every year since FY2007/8. They are mostly attributable to “a lack of business acumen and a failure to keep proper records”, according to the AFSA. However, the non-businessrelated data show a more worrying

BANKRUPTCIES RISING IN AUSTRALIA Source: illion

Australia’s personal bankruptcies, 2013–17 33,000 32,000 31,000 30,000 29,000 28,000 27,000

2013

2014

2015

2016

2017

trend. The primary cause of these insolvencies for the previous two consecutive years is “excessive use of credit”. Despite the wording, that doesn’t necessarily indicate frivolity – four in 10 credit card holders use their plastic to cover groceries and utilities.

Unemployment and loss of income, in addition to domestic discord, complete the top three.

“If we are to better understand the drivers of this rise, then one needs to be able to drill down into the data and see what is causing this to occur. While we do not see much impaired lending – less than 1% – I do see that we drive people to buy now and pay later with long terms of no interest,” says Greg Cook, senior credit adviser, Loan Market.

The rest of the world may have been shocked out of its credit coma in 2008, but Australia has continued to spend, and today the country’s total credit card debt stands at $47bn and counting. Australia has the fourth-highest level of personal debt in the world, and mortgages comprise less than 60% of it.

“Car loans and personal loans are far too easy to get or have special low rates to drive sales. All this credit is designed to drive and fuel personal spending, a factor the RBA keeps mentioning is a driver of the economy,” Cook says.

As recently as November, a statement from the IMF predicted Australia’s low-interest environment would “probably persist for years”, providing stability for the foreseeable future. In February of this year the line changed somewhat, with the IMF advising the RBA to publish US Federal Reserve-style

“dot plots” of various probable rate-increase scenarios, to help households prepare before the higher rates hit.

The likely scenario is a 2 percentage point rise within four years, taking the overall rate to 7.1% by 2022. Exactly when the process will begin is still anybody’s guess, with no significant increase in GDP, inflation or wage growth on the horizon.

To some, the current state of personal finances across Australia is the canary in the coal mine – a warning of an impending “economic Armageddon”, as the media has been quick to predict. To others, it’s merely an anomaly.

“A confluence of issues has created a perfect storm for many households.

As he observes, it’s a fact of life in a free-market economy that a certain level of bankruptcies will occur, but this too fluctuates.

He continues: “Granted some [parts] might be slow compared to a previous time – or they may all be sluggish at times – however, economies expand and contract at various stages. We have seen slowdowns and recessions but never a meltdown, and I feel things are too well managed by the regulators, the banks, the RBA and the government to ever see that.”

Source: illion

Top 10 suburbs for personal bankruptcy in 2017, nationally

1

Victoria demonstrated the biggest year-on-year change, with rates rising 121.9% to a total of 71 cases.

The semi-rural suburb of Baldivis, Perth, took the title for highest concentration of personal insolvencies in a single suburb with 103 cases, followed by Victoria’s Pakenham and Craigieburn with 93 and 88 cases respectively. Pimpama, in Queensland filed 88 cases.

The bottom line for brokers is that the typical client profile is changing.

“Clients who find themselves in hard times may in the future need specialist help with finance

Baldivis, WA 103

Pakenham, Vic 93

3

Creative solutions While Queensland recorded the highest number of bankruptcies by state, the suburb of Berwick in

“There has to be more consideration given to the second-tier non-bank lenders that can accommodate the client’s needs” Peter Ellis, Lending Mate For some this leads to bankruptcy, which is a lagging indicator of financial stress. Our measurement of mortgage stress suggests more pain ahead. So this is not a blip,” says Martin North, principal at Digital Finance Analytics.

While that may be the case within the housing market, economically speaking, some say it’s only part of the story.

“The economy rolls on. It is made up of many moving parts that make up the whole – they are never all doing bad or all doing well at the same time,” Cook says.

AT A GLANCE

Craigieburn, Vic Pimpama, Qld 88

Upper Coomera, Qld 85

5

6

Orange, NSW Southport, Qld 75 Dubbo, NSW Point Cook, Vic 74

9

4

Blacktown, NSW 82

Caboolture, Qld 77

7

2

8

Morayfield, Qld 72

Kirwan, Qld Berwick, Vic 71

10

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products. Lending policies are changing, sometimes weekly, and as such brokers are going to have to adapt their businesses and work with clients who don’t fit the box,” says Ellis.

“There has always been a tendency in broking to see these clients as hard to help, too much work and not as quick to settle.

But the so-called vanilla-type clients are changing. There has to be more consideration given to the secondtier, non-bank lenders that can accommodate the client’s needs, rather than the majors that seem to get the majority of loans. As the economy changes, gone are the days of everyone fitting nicely into a set criteria.”

How many of these clients exist is still a matter of debate. RBA assistant governor Michele Bullock maintains that financial distress is “not acute at the moment”, playing down the possibility of a further rise in bankruptcies in 2018, and predicting wages and consumer spending will improve in the short to mid term.

In the latest HILDA survey, the median housing debt-to-income ratio stood at 250%; however, the median ratio of mortgage repayments to income during

From left: Peter Ellis, founder and borrowers’ advocate at Lending Mate; Greg Cook, senior credit advise r, Loan Market; Martin North, principal at Digital Finance Analytics

“What’s ahead depends on future income growth and interest rates.

Private sector income growth is below the cost of living and under pressure from rising power costs, childcare and school fees, plus council rates,” North explains.

“Despite low mortgage rates, the average loan size, especially in the eastern states, has grown in

“Future rate rises will hit home and, unless income growth recovers quickly, we will see more financial stress ahead” Martin North, Digital Finance Analytics the same period remained stable at around 20%.

On the other hand, data published

by Digital Finance Analytics shows that 921,000 Australian households, equivalent to 29.7%, were estimated to be under mortgage stress in December 2017, up from the previous month’s 913,000. Regional analysis confirms that the highest concentration was in NSW, up from 251,576 in November to 258,572 in December.

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line with rising home prices, so debt levels are as high as ever.

For those renting, more are finding it difficult to find an affordable place to live.”

What can be said with some certainty is that nothing lasts forever and, as always, failure to prepare is preparation to fail.

North adds, “Future rate rises will hit home and, unless income growth recovers quickly, we will see more financial stress ahead.” AB

STATE-BY-STATE BANKRUPTCIES Source: illion

Personal bankruptcies, 2017

NT

0.4k

QLD

9.5k

WA

3.9k

SA

2.1k NSW

9.1k

VIC

6.1k ACT

0.4k TAS

0.8k

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OPINION

THE CUSTOMER IS ALWAYS RIGHT Following a recent trip to London, Pepper Money’s director of sales and distribution, Aaron Milburn, reflects on the UK’s approach to financial reform, credit checks and the transition to a customer-first model

two recent trips to the UK and New Zealand confirm for me that the work our industry is doing to transition to a customer-first approach is not only on track but set to benefit all stakeholders.

During my trip I met with Pepper colleagues and industry contacts in England, Ireland and New Zealand to understand how they operate and to gain a better sense of how changing regulatory settings have altered their markets.

The thing that struck me instantly was that all three markets are working towards similar outcomes, but those similarities are punctuated by marked differences in each of the various operating markets.

For instance, while we operate based on largely the same broker distribution model as in the UK, they operate in a largely fixed-rate lending market. There is an upfront fee on mortgages, a trail (about 30 basis points) with no clawback for some lenders – mainly because it’s a fixed-rate market. It isn’t uncommon to hear about average turnaround times in the UK of 12 days. One bank I visited in the UK offered interest-only loans on the proviso that there was an LVR of at least 65% and the applicant had an income of over £100,000.

When brokers lodge an application in the UK and Ireland there is often an upfront application fee as part of the lender’s process.

to a customer-first model. At the time of the GFC, banks didn’t just lose their balance sheets, they lost the trust of their customers. The only pathway back had to be a focus on the customer in order to win customer trust and loyalty.

The unintended consequence of the £30,000 bank guarantee implemented during the GFC meant that customers intentionally spread their nest eggs across various financial institutions.

When the economy recovered, trust in banks was at an all-time low.

MY

Rebuilding trust is at the core of all change Since I last worked in the UK back in 2008, the industry has fully transitioned 20

www.brokernews.com.au

file quality, service, colleague behaviours and productivity.

We are all on the CCR journey While Australia and Ireland are only at the beginning of their comprehensive credit reporting journeys, the UK and New Zealand are more advanced in their own versions of CCR. In the UK and New Zealand, customers are very aware of the concept of a credit score and what it means for them when they are applying for a loan.

For instance, Pepper Money in the UK has naming conventions for its products that clearly highlight for the broker who the product is meant for.

For example, ‘Pepper48’ is targeted at and suitable for clients that haven’t had a credit event or default in the last 48 months.

Ireland is moving from a single, bank-owned credit bureau that only reports the past 24 months’ worth of behaviour, to a Central Credit Register that will collate and calculate a customer’s credit score based on current behaviour. Like in Australia, it will take approximately two to three years for this to be fully comprehensive.

Lessons learned As has been observed by others, the reform path we are on here in Australia has its genesis in many of the changes in the United Kingdom. The changes adopted in the UK aren’t a million miles

“The customer must be at the core of any decision taken, recommendation made or product created” Aaron Milburn, director of sales and distribution, Pepper Money

Aaron Milburn Director of sales and distribution, Pepper Money

It was up to the banks to win back customer loyalty. This forced banks to change their processes. In order to engender trust and attract new deposits, they had to change their strategy completely.

I spoke to a number of branch staff about the changes they’d witnessed.

Overwhelmingly, they cited the renewed focus on the customer and on finding the best outcome for the customer.

Changes to staff incentive schemes have meant that the historic focus on sales has been replaced by a focus on the customer – that means no lead targets.

Instead, staff now have an annual performance review with no bonus payments. Performance is measured by

away from the recommendations made in last year’s Sedgwick report.

The customer must be at the core of any decision taken, recommendation made or product created.

It’s not lost on me that profit is a driver of shareholder return. However, more than ever before, for brokers and lenders alike the focus on customer has become even more important. And as we all know, when the customer benefits we all benefit. AB Aaron Milburn has more than 15 years of financial services experience and is a highly accomplished leader, with a passion for education and contributing to change in the mortgage broker industry.

MOVERS AND SHAKERS

FORMER NEW ZEALAND PM JOINS ANZ

Big four bank appoints former PM to its board ahead of election for the post of director in December

Sir John Key

has announced that former New Zealand prime minister Sir John Key will join the board of the ANZ Banking Group with immediate effect.

The country’s 38th prime minister, Key was appointed chairman of ANZ’s New Zealand subsidiary in January after joining its board in October 2017.

He will stand for election as a director of the group at ANZ’s annual general meeting on 19 December 2018.

Commenting on the appointment, David Gonski, chairman of the ANZ Banking Group, said, “Following a successful international career in business and politics, Sir John has the ideal credentials to further strengthen ANZ’s board. Our New Zealand business has already benefited from his significant experience, and I know he will make a valuable contribution to the ongoing success of the broader group.”

The news follows confirmation that ANZ has also appointed Kevin Corbally as its chief risk officer. The role will ANZ

see him assume his position as member of the Group Executive Committee, which is responsible for protecting the group’s balance sheet as well as overseeing its risk strategies, policies and processes.

Corbally, who will report to ANZ CEO Shayne Elliott, succeeds Nigel Williams, who is retiring from the bank to pursue a career as a non-executive director.

Elliott said, “Managing risk appropriately is a critical function of all high-performing banks, and I’m pleased to be able to appoint a strong leader with demonstrated values and diverse experience at a time the industry is facing increasing reputational and regulatory issues.”

He added that “Kevin’s experience in international credit and capital management, combined with his track record leading our internal audit function, makes him the ideal executive to continue the evolution of our risk function and to build on the strong, mutually respectful relationships with our regulators.” AB www.brokernews.com.au

21

PEOPLE

Have an interesting deal?

Had a particularly difficult or interesting deal? Why not share it with us? Email:

Melanie.Mingas@keymedia.com

A BIG DEAL

When Bernard Desmond, director and finance specialist at Loan Market, received a LinkedIn message from an Australian family in Dubai, he had no idea it would become the most fulfilling deal of his year

THE FACTS

Loan size and term $1.2m for 15 years

Client Male applicant in his 50s

Goal Purchase of dream family home

Location Macclesfield, Vic 3782

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www.brokernews.com.au

Aggregator Loan Market

I took time to understand the client’s exact experience so far, learning about all the banks he had approached and making a note of the outcomes.

In the process of doing this due diligence I found some silver linings: servicing was strong, and the borrower’s wife and two children already lived in the property. Confident of a positive outcome, I got to work.

THE SCENARIO

With more than 600,000 Australians currently overseas, it’s a surprisingly common misconception that borrowers can continue to access Australian mortgage finance while living and earning abroad.

One would-be borrower was learning this lesson the hard way when, desperate and stressed, he reached out via LinkedIn in a last-ditch attempt to solve what was fast emerging as an impossible situation.

The house in question was a fivebedroom residence set on a unique 22-acre horse property – a true Aussie lifestyle home. The buyer, an Australian man in his 50s who lived and worked in Dubai, UAE, required finance for 80% of the purchase.

He had been confident he would not have any issues in finding a bank as he had sufficient funds to service the commitment. But he soon discovered it was not so easy to find a lender who would not only lend on foreign income but also consider a security that was outside the normal suburban-home criteria.

There were three specific challenges. In addition to the foreign income, the buyer had spent 12 months approaching – and being rejected – by a number of providers.

In fact, he had been searching for so long that the vendors were threatening legal action to recover their losses, and a deposit of $150,000 was at risk.

I said I would do everything to find a solution if there was one in this scenario.

Lender La Trobe Financial

THE SOLUTION

Initial enquiries confirmed what the buyer already knew. Some lenders were happy to go up to 60%, and some private lenders up to 70%. However, no one was going to 80%. If this was to be

Chief lending officer Cory Bannister responded with the good news the client needed. We collaborated closely with Bannister and the team at La Trobe to devise a bespoke solution for a not-so-unique situation.

Soon after I was able to go back to the buyer with the update he had been waiting for. The last 12 months had placed significant strain on the family, and they knew they were fast running out of options, so it really was make or break.

The outcome was certainly a big win for the client and personally very satisfying for me, as I was able to get a result in record time, which was particularly appreciated given his drawn-out experience.

When I gave him the good news, his exact words were: “I cannot believe it.

I am so glad I met you, Bernard. You have always been available and guided us like an expert to the finish line.” Even the conveyancer was in shock after witnessing the various lender changes and multiple valuation reports.

THE TAKEAWAY

The obvious takeaway from this situation is never give up. However, there is a little more to it than that. Workshopping a deal with decision-makers was key to solving this application. Drawing on my professional experience, I saw merit in the application and knew to follow it through.

If you find yourself in a similar position, stack it up with supporting documents, mitigate any concerns the lender might have, and you will be surprised. Even in this market you will find solutions; and the ability to do that for people, rather than simply selling them a bank product, is the

The obvious takeaway from this situation is never give up. ... Workshopping a deal with decision-makers was key to solving this application

Bernard Desmond Director and finance specialist, Loan Market

done it would need special sign-offs and exception approvals.

Then I started approaching things in a different way and reached out to decision-makers who worked for lenders in very senior positions.

I sent a proposal to La Trobe Financial, with a reduced loan term of 15 years in order to provide a strong exit strategy.

reason I became a broker. The feeling of accomplishment from solving this is fantastic.

Mortgage broking is a very rewarding and fulfilling career. We get to meet and help customers every day, and we are one of the only industries that don’t take their costs from the consumer. I feel great, and ready to take on 2018. AB

THE CHOICE IS YOURS

MAGAZINE The only independent magazine dedicated to mortgage industry news, opinion and analysis

WEBSITE Breaking news, in-depth profiles, features, online forum and Australian Broker TV

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FOR MORE INFORMATION, PLEASE EMAIL EDITOR@BROKERNEWS.COM.AU www.brokernews.com.au

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FROM THE FORUM

Top comments from trending stories on brokernews.com.au

FBAA: COMPREHENSIVE CREDIT REPORTING WON’T WORK

MAJOR BANKS AND LENDERS TIGHTEN BORROWING ASSESSMENTS

The FBAA has warned that draft comprehensive credit reporting legislation may backfire. Treasurer Scott Morrison introduced a bill mandating comprehensive credit reporting would apply to the major banks from July. He predicted that, through CCR checks, customers with good credit histories would be able to get lower interest rates on loan products. FBAA executive director Peter White said there was “no chance in hell” this would happen. “Banks will maintain their current interest rate margins for customers with a better credit file and increase the rates for those who have been through past difficulties,” he said.

ANZ and Westpac Group have introduced confidential changes to their assessment and approval of borrowers, with ANZ clipping the discretion of its front-line mortgage assessors, according to reports. A spokesperson for ANZ said the bank had recently added “a higher level of approval for some discretions”, although this was “not a change to the bank’s credit policy or underwriting standards”. Further reports claimed Westpac had also introduced strict tests of borrowers’ current and future repayment capacities, and CBA had announced several changes to its home loan lending policies as well as a new assessment document for brokers.

This will become like the interest only saga, whereby all it does is increase the cost to certain consumers and lower the cost for absolutely no one. Throw the phrase ‘benefits the consumer’ on anything, and all politicians immediately say yes, without looking at the fine print.

Bottom Line on 14/02/2018 at 10:13 AM

After 30-odd years in finance working for banks and mortgage insurers, and 10 years as a broker, it is almost officially too hard.

This focus on interest only, living expenses and exit strategies blah blah blah to fix a problem I can’t see any evidence of is completely out of control. Please take note, regulators: you are very close to destroying an industry which is here to help clients.

Advice for the Regulators on 16/02/2018 at 4:03 PM

Good points from an experienced industry leader, but it will take just one bank to break ranks and differentiate their pricing to win market share. Then it will be on.

The Renegade Banker on 14/02/2018 at 10:38 AM

Well done, Peter; this is one man I will back. Always stands up for the individual battling broker. Thanks, Pete.

Battling Broker on 14/02/2018 at 10:16 AM

Spot-on advice for the regulators, but these cardigan wearers think they know best! All these changes result in zero benefit to our clients and just make our businesses way less productive by spending time producing crap that nobody reads – except for the employees in the aggregators that audit this rubbish.

Compliance achieves next to nothing as rogues are usually still compliant on paper!

Red Tape on 16/02/2018 at 7:20 PM

Peter’s views are not very well informed in a number of areas.

The idea that comprehensive credit reporting information from 10 or 15 years ago could affect an individual’s access to credit in Australia is laughable. The new comprehensive data only goes back two years and then drops off the file. Even defaults, which are already on Australian credit reports, only stay on for five years.

Peter also misses the point that many Australians who are only eligible for expensive non-conforming loans due to those defaults on their credit file will become eligible for cheaper mainstream loans if they have a good recent repayment history.

Realist on 15/02/2018 at 4:41 PM

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Do you think ASIC will ask CBA to demonstrate how an 80% loan is inherently more risky than a 70% loan showing genuine risk mitigation?

Skeptical on 28/11/2017 at 6:15 PM

It makes me wonder. These changes will apply to the third party only or the branch/mobile lenders network as well? Do we have to compete with branches? Will they have discretionary power to waive?

Alex Marchinovskiy on 28/11/2017 at 6:23 PM

CAUGHT ON CAMERA On 16 February former Australian Broker editor Otiena Ellwand chaired her first roundtable since taking over as editor of sister title Mortgage Professional Australia at the Sofitel Sydney Wentworth. The magazine’s third annual Major Bank Roundtable welcomed Tony MacRae, general manager of third party distribution, Westpac Group; Steve Kane, general manager of broker distribution, National Australia Bank; Simone Tilley, general manager of residential broker, ANZ; and Sam Boer, general manager of third party banking, Commonwealth Bank Australia. Broadcast live online, the hour-long debate covered the Combined Industry Forum recommendations, broker training and education, assessment of household expenses, and IO borrowing.

To catch up on all the action, visit www.mpamagazine.com.

www.brokernews.com.au

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DATA

WESTERN AUSTRALIA

SA SPOTLIGHT

Perth may have finally hit bottom, but despite rising vacancy rates rental activity is on the up Falling dwelling prices are keeping Perth on the bottom rung of the national property ladder, but leasing activity is on the rise.

“Perth’s rental market appears to be recovering, with new REIWA data revealing improvements in leasing activity and listing levels during the September [2017] quarter,” says Hayden Groves, president of the Real Estate Institute of Western Australia.

“Where we were previously experiencing low leasing levels and high listings, that trend has now reversed. Properties for rent are declining and leasing activity is strong.”

While opportunities look bright for first home buyers to enter the market, BIS Oxford Economics’ Outlook for Residential Land 2017–2022 warns buyers to be cautious, pointing out that, even with lot production easing, demand levels remain low.

Furthermore, the existing significant oversupply will continue to bring down any potential upswings in the near future.

Area

Type Median value

Quarterly

12-month

growth

growth

Perth

H

$510,000

1.0%

-2.3%

WA Country

H

$340,000

1.5%

-3.6%

Perth

U

$396,000

-0.5%

-4.8%

WA Country

U

$249,000

-9.5%

0.0%

QUEENSLAND

The completion of development projects is expected to introduce new supply in the state The oversupply of apartments in Brisbane is creating opportunities for buyers to get their hands on new dwellings at good prices as off-the-plan unit sales reach settlement point.

Demand for detached housing is maintained by the inflow of interstate migrants, which could stave off oversupply problems but not for long.

“The oversupply in the Brisbane apartment market will have flow-on effects in the house and land market,” predicts Angie Zigomanis, senior manager at BIS Oxford Economics.

“Falling unit prices will shift some buyer demand from the house market to the unit market, while easing unit rents will delay some first home buyer demand from moving into homeownership.”

With the oversupply in Brisbane, interest has been shifting to the Gold Coast and the Sunshine Coast, where demand has surged over the three years to 2016/17.

Area

Type Median value

Quarterly

12-month

growth

growth

ADELAIDE'S SWEET SPOT

Pockets of growth sustain strong demand that is balancing supply, inspiring growth and keeping rents steady

is very much a middle-of-the-pack property market, as employment troubles are keeping SA from making real strides. However, with parts of the area drawing interest from buyers, the capital remains afloat.

“South Australia remains a steady marketplace characterised by supply and demand levels that are very much in tune with each other,” says Charles Tarbey, chairman and owner of Century 21 Australasia.

“Even though the state has struggled in retaining industry, property prices are fair and affordable.

Growth has been relatively flat, with a 0.1% increase over the November 2017 quarter; however, I believe it is still a good state to invest in.”

Auction results have been supporting this. Adelaide’s clearance rate increased in 2017 compared to 2016.

“As of December 2017, Sydney and Melbourne have recorded significant declines over the same time last year; however, South Australia has appeared to buck this trend,” Tarbey says.

ADELAIDE

Rental affordability improves Suburbs to look out for include those near the Adelaide CBD, such as Prospect, Walkerville, Campbelltown and Unley. These prestige spots appeal strongly to buyers.

“Buying in Prospect and Walkerville is paying dividends for long-term property owners,” says Gregg Harris, general manager of NAB South Australia.

“These suburbs have experienced the strongest value growth over the past decade, according to the latest Core Logic data – together classified as a capital city region, they saw a 40.1% growth in residential property values for the 10 years to October 2017.”

Developments in Prospect are expected to sustain growth. “There is an insatiable demand for city-fringe living,” Harris says. “Many large, older homes are being replaced with multistorey apartment buildings.”

Across Adelaide, rents largely remained steady over 2016–17, at a median of $340 per week for a threebedroom house, while the proportion of income needed to pay rent decreased, boosting rental affordability. AB

H

$527,000

-0.6%

2.9%

Median price (houses)

QLD Country

H

$430,000

-1.8%

1.8%

$285,553

Brisbane

U

$415,000

1.2%

-2.4%

QLD Country

U

$380,000

0.0%

2.7%

www.brokernews.com.au

All indicators are pointing towards a good year ahead for property in Adelaide Adelaide has a history of being a very steady market, and while we don’t see sudden surges in growth, we don’t see sudden declines either.

In saying that, the past 12 months have seen excellent growth in a lot of suburbs. Prices in Adelaide are still relatively cheap when compared to other states, which means you can buy good-quality property within close proximity to the city at very reasonable prices.

There are currently lots of small developments underway in excellent, city fringe suburbs where developers are prepared to sell for competitive prices to allow quick sales so they can move on with more projects. Some buyers are realising instant equity on these properties, and with price ranges around the $400k to $550k level there is plenty of interest from first home buyers and investors alike.

As with all markets, there are always areas that don’t do as well, and some of the more northern suburbs are a good example of this at the moment with Holden closing down. However, if you stick within 10km of the CBD and do your research, there are pockets of value everywhere.

Michael Karp Principal, Smartline Adelaide

SUBURB TO WATCH: EVANSTON

Brisbane

26

BROKER PERSPECTIVE

Median price (units) $130,568

Source: CoreLogic

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

4.3%

9.3%

10.9%

4.9%

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

-3.5%

-4.8%

-1.9%

7.5%

AUSTRALIAN CAPITAL TERRITORY

Confidence in the employment sector is boosting the property market in Canberra OPPORTUNITIES AND KEY INFRASTRUCTURE

Strong connection

Future development

Travel friendly

Major investment

"Faster than NBN" internet has been promised for Adelaide under a Labor plan

A landmark North Adelaide site is on the verge of redevelopment

Work has been completed on the southern section of Adelaide’s North-South Bikeway

Labor has promised a $2bn infrastructure plan if re-elected

HIGHEST-YIELD SUBURBS IN SOUTH AUSTRALIA Suburb

Type

Median price

Quarterly growth

12-month growth

Peterborough

H

$80,000

0%

-6%

Whyalla Stuart

U

$76,000

-5%

-24%

Port Pirie West

H

$108,500

-1%

-3%

Solomontown

H

$115,000

8%

-23%

Whyalla Norrie

U

$85,000

2%

-15%

Though renting may be becoming less affordable in Canberra, the cost of buying a home in the ACT has become more affordable over the September quarter, with the proportion of income required to meet home loan repayments decreasing to 18.5%.

This represents a decrease of 1.3 percentage points in the September quarter and 1.5 percentage points compared to the same quarter last year. Perhaps unsurprisingly, the number of first home buyers has increased by 20% in the ACT. REIA reports that the number of loans to new owners skyrocketed by 64.4% compared to the September 2016 quarter.

“Of all Australian first home buyers over the quarter, 2.4% were from the Australian Capital Territory, while the proportion of first home buyers in the territory’s owner-occupier market was 26.8%.”

The employment sector plays a crucial role in the capital’s appeal, given the availability of positions in government, tourism and agriculture.

Area

Type Median value

Quarterly

12-month

growth

growth

Canberra

H

$670,000

-0.7%

7.1%

Canberra

U

$445,000

4.6%

0.7%

www.brokernews.com.au

27

DATA

VICTORIA

Despite rising migration levels and a population boom, Victoria’s property market may be slipping

CAPITAL CITY AUCTION CLEARANCE RATES

Melbourne remains a solid, competitive market, especially in comparison to Sydney, even though auction results for November 2017 were not favourable.

“Victoria remains a state with strong investment opportunities, and I believe it has the potential for the most stability in prices moving forward, despite the fact that clearance rates at auctions have been declining,” says Charles Tarbey, chairman and owner of Century 21 Australasia.

“However, investors should be aware that, although vacancy rates have been low for some time, they have started to show signs of increasing.”

With many investors in Melbourne starting to hit their ceiling in terms of loans, the pressure of sustained high levels of growth has begun to ease in this state. First home buyers are therefore finding opportunities to buy affordable properties.

WEEK ENDING 18 FEBRUARY 2018

growth

H

$740,000

4.2%

13.3%

VIC Country

H

$332,000

0.6%

5.2%

Melbourne

U

$532,250

2.4%

4.9%

VIC Country

U

$275,000

1.9%

3.8%

Sydney’s slowing market could have a positive impact on other states

$1,000,000

Quarterly

12-month

growth

growth

Sydney

H

$980,000

-1.0%

8.3%

NSW Country

H

$452,000

-0.1%

6.6%

Sydney

U

$715,000

-2.9%

4.9%

NSW Country

U

$385,000

-2.3%

6.3%

www.brokernews.com.au

Not sold

17

Clearance rate

67.3%

Total auctions

35

Sold

4

Not sold

14 22.2%

Houses

Sydney Melbourne Brisbane Adelaide

Perth

Hobart

$490,000

$440,000

$326,000

$0

$390,000

$100,000

$515,500

$200,000

$313,000

$300,000

$439,500

$500,000 $400,000

$511,850

$600,000

$691,000

$700,000

$685,500

$800,000

$835,000

$900,000

Dwelling values may be dropping in Sydney, but the market as a whole remains stable. Charles Tarbey, chairman of Century 21 Australasia, says this is largely due to regional areas retaining some upside.

“According to CoreLogic, the softer conditions in Sydney are making a significant contribution to the flatter headline results for overall dwelling value growth,” he says.

Sydney’s effect on the national property market is unsurprising, considering its size. The city alone comprises one fifth of national housing stock and accounts for a third of Australia’s property value.

“I advise vendors to ensure their expectations are aligned with these types of conditions, and some may need to adjust their pricing downwards as the number of buyers continues to reduce,” Tarbey says.

For OpenCorp director Matthew Lewison, however, Sydney’s influence on the overall market could be a good thing.

28

35

Clearance rate

MEDIAN HOUSE AND UNIT PRICES

Type Median value

Sold

PERTH

NEW SOUTH WALES

Area

79

Darwin

Units

$414,250

growth

Melbourne

Total auctions

$647,500

12-month

ADELAIDE

$350,000

Quarterly

$390,000

Type Median value

$532,000

Area

A preliminary auction clearance rate of 69.1% was recorded across the combined capital cities as auction activity ramped up in the week ending 18 February, with a total of 1,963 homes taken to auction, increasing from the 1,490 auctions held in the previous week when (based on final results) 63.7% cleared.

While auction activity increased in the last couple of weeks, coming out of the slowdown, volumes are increasing at a slower pace than seen over the equivalent period last year (2,291).

Canberra

CAPITAL CITY HOME VALUE CHANGES Capital city

Weekly change

Monthly change

Year-to-date change

12-month change

Sydney

-0.2%

-0.8%

-1.4%

0.1%

Melbourne

-0.1%

-0.2%

-0.3%

7.3%

Brisbane

-0.1%

-0.2%

-0.2%

1.9%

Adelaide

-0.1%

-0.2%

-0.3%

2.3%

Perth

-0.1%

-0.3%

-0.5%

-2.8%

-0.1%

-0.4%

-0.8%

2.4%

Combined 5 capitals

*The monthly change is the change over the past 28 days

BRISBANE CANBERRA Total auctions

79

Sold

39

Not sold

23

Clearance rate

Total auctions

120

Sold

56

Not sold

48

Clearance rate

48.9%

62.9%

SYDNEY Total auctions

718

Sold

396

Not sold

137

Clearance rate

74.3%

TASMANIA

MELBOURNE Total auctions

923

Total auctions

9

Sold

543

Sold

1

Not sold

225

Not sold

7

Clearance rate

Clearance rate

70.7%

TASMANIA

Area

Hobart is one of the top growers in the national property market, with no signs of slowing down Hobart is still going strong, and the positivity is spreading to other areas of the Apple Isle. “There is no doubt about it – Hobart is now at the top of the shopping list in regard to growth across the country,” says Josh Hart, director at One Agency Launceston.

“I predict this isn’t going to slow down any sooner, with a number of capital projects in tourism and housing about to start in the next 12 to 18 months to continue the transition of Hobart to becoming a true capital city.”

CoreLogic data indicate that property prices in Hobart rose by 13.4% over the 12 months to November 2017. The gross rental yield comes in at an average of 5%. Vacancy rates are tight in the capital, and buyers are beginning to look to other parts of the state that are even more affordable and offer higher returns.

12.5%

Type

Median value

Quarterly growth

12-month growth

Hobart

H

$407,000

5.7%

7.8%

TAS Country

H

$270,000

0.0%

3.8%

Hobart

U

$315,000

12.9%

5.0%

TAS Country

U

$244,500

4.0%

6.7%

All data sourced from CoreLogic.com.au

www.brokernews.com.au

29

PEOPLE

IN THE HOT SEAT Brenden Lowbridge doesn’t do things by halves – from setting up his own business to training for his first marathon within a year. He shares the secrets to what drives him with Australian Broker Who or what inspired you to become a broker?

I have always loved property, in particular wealth creation A through property investment.

Straight out of high school I worked for one year in property sales for a large private developer, then the GFC hit and it was time to look for a new career path. I decided I was better suited to broking. I liked the professional aspect, the advisory, the numbers and, more than anything, continuing to work with people. So I started a traineeship and enrolled in finance at university. The plan was that after graduation I could decide whether or not to take a bank job.

When I actually finished university I decided to stay in the industry I had grown to love. The logic was also that I would still get to work within the property industry, however I would get my weekends back. That assumption was 90% right.

Q

What do you expect will be the biggest challenges for brokers in 2018?

I believe continual changes in lending policy and A serviceability constraints for multiple property portfolio investors will mean more time spent navigating where to place loans, as well as more time to approve. On the upside, electronic documents and instant bank transfers will speed up the postapproval side of the process.

Q

What’s one thing you are looking to improve on this year, personally or professionally?

As a non-runner who has signed up for a marathon this year, A I would have to say my running ability. I also plan to expand my team by outsourcing selected tasks in order to focus on the things that I am good at and enjoy, for example, strategy conversations with customers.

Q

What’s one memorable experience you’ve had as a broker recently?

Not so long ago I took the decision to work for myself. During A the process of making that decision I had self-doubt and fear and often thought, “What if the clients stop coming in?” I took the leap and it’s been the busiest six months of my career to date. It’s amazing what happens when you back yourself.

Q

Q A 30

What’s the best thing you’ve seen, heard or read recently?

Drake. He played three dates in Sydney at the end of last year. AB www.brokernews.com.au

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