Australian Broker 15.09

MAY 2018 ISSUE 15.09

Tempting the investors back Can investors reinvigorate Australia’s cooling property markets? /16

Big deal How a hat-trick of loans scored a young couple their first home /18

STEVE LAWRENCE La Trobe Financial’s VP head of major commercial clients advises brokers on how they can leverage Australia’s business boom to support their own operations /14

Caught on camera All the action from OnDeck’s business lending seminar /25

ALSO IN THIS ISSUE …

Speaking up for brokers Entourage Finance broker Vincent Moore responds to media critics /20 Movers and shakers The latest appointment news from across the industry /24 In the hot seat Spotcap’s Daniel Ferro talks tax, tapas and survival tips /30

NEWS

IN THIS SECTION

Lenders NAB CEO discusses half-year results /04

Market: Budget roundup A round-up of the Federal Budget 2018 /08

CBA responds to APRA review and recommendations /06

Technology Fitbit-style finance app launched by fintech /10

Regulators Dispute resolution scheme receives final approval /12

www.brokernews.com.au MAY 2O18 EDITORIAL

SALES & MARKETING

News Editor Rebecca Pike

Sales Manager Simon Kerslake

Journalist Nicola Middlemiss Production Editor Roslyn Meredith

DATES TO WATCH

Upcoming can’t-miss events

ART & PRODUCTION Designer Martin Cosme Production Manager Alicia Chin

2 8 M AY

2 9 M AY

3 0 M AY

Nominations open for Australian Mortgage Awards

Ministers tackle affordable housing

FBAA’s ACT Canberra Summit

Returning for the 17th year on 19 October, the Australian Mortgage Awards is the leading independent awards event for the mortgage industry.

It recognises excellence and highlights the outstanding achievements of those in the business across 31 categories.

Nominations will be open from 28 May to 29 June

During the one-day AHURI conference on affordable housing taking place in Canberra, Michael Sukkar MP, Pru Goward MP and Yvette Berry MLA will speak on the issues surrounding affordable housing at the federal, state and territory levels

Brokers are invited to join the FBAA at Eastlake Football Club in Canberra, ahead of executive director Peter White presenting the Combined Industry Forum’s proposals to government.

The half-day event will also include a regulatory update and presentations from experts on mortgages, lending and more

Traffic Coordinator Freya Demegilio

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

Rebecca Pike +61 2 8437 4784 Rebecca.Pike@keymedia.com

SUBSCRIPTION ENQUIRIES

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

3 1 M AY – 7 J U N E

5 JUNE

6 JUNE

MFAA on tour

RBA board meeting

Broker Business Exchange

The MFAA’s Changing Gears National Roadshow continues with further events in Adelaide on 31 May and Brisbane on 7 June. Each will feature thought-provoking discussions and key insights, followed by the MFAA awards recognising the best and brightest talent from across the industry

The RBA board meets for the first time following this year’s federal budget, and it’s all bets on as to whether the cash rate will remain unchanged for the 20th consecutive month. CBA “no longer sees a hike” in 2018, but economists still expect a change

Taking place at the Westin Sydney, BBX is Australia’s leading independent national broker event, featuring an agenda of insightful conversation and debate, as well as observations from leading industry personalities

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

13 – 21 JUNE Pepper’s National Insights Roadshow In its fourth year, the Insights Roadshow forms a significant part of Pepper’s education offering to the third party channel. The roadshow starts in Melbourne on 13 June before moving to Adelaide on 14 June, Perth on 19 June, Sydney on 20 June, and Brisbane on 21 June

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23 – 24 JUNE

2 4 M AY – 2 5 J U N E

Brisbane Property Expo

From Technical Professional to Manager & Leader

Thousands of property buyers and investors are set to arrive in Brisbane for the Property Buyer Expo – the largest and most complex property expo in the state. It will focus on major developments across Brisbane, Gold Coast, Sunshine Coast, Ipswich, Logan, and other hotspots

Brokers and professionals in Sydney, Perth and Melbourne will have the chance to gain insight on emotional intelligence, human behaviour and team dynamics on 24 May, 20 June and 25 June as Informa hosts it leadership training course in key cities across Australia

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 BROKERS ENCOURAGED TO OFFER CUSTOM LENDING group sales manager John Mohnacheff wants to see all brokers offer custom lending to increase home ownership opportunities.

Observing a growing number of people who mainstream lenders will not engage with, he said: “Custom lending is not hard; it’s just different. When a new client walks in you don’t know whether they are a prime or custom client until you engage with them. Never prejudge – sit down, hear them out and then give them a solution.”

LIBERTY

MAJOR BANK SHARE PRICES PLUMMET Source: ASX

Closing price percentage change since November 2017 demonstrates bottom-line impact of royal commission

10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Public hearings

-20.0%

BANKWEST TO CHANGE COMMISSION MODEL is to reintroduce year-one trail commissions as part of a series of commission model changes coming into effect from 1 July.

Further changes will include the reduction of trail in year three to 0.15% and from year five and onwards to 0.20%, as well as the adoption of the Combined Industry Forum recommendations on paying commissions on utilised funds and net of offset. There will be no changes to the upfront commission rate.

-25.0% December NAB

BANKWEST

“At a consumer level, the market is increasingly savvy about the options available and is open to brokers providing guidance in a cluttered market” Brett Graves CEO, Ensurance Now

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January ANZ

February

Westpac

CBA

March AMP

NAB CEO QUIZZED ON BANK’S HALF-YEAR RESULTS Andrew Thorburn takes questions on NAB’s lending criteria, including maximum loan-to-income ratio and SME borrowing announcing NAB’s half-year results, CEO Andrew Thorburn answered questions about the bank’s mortgage lending practices.

The results showed a 16% drop in cash profits when restructuring costs were taken into consideration.

Without those costs, NAB’s statutory profit was up 2%.

The results also demonstrated continued strength in the mortgage broking sector, with around 4,646 brokers under NAB-owned aggregators. Nearly 42% of drawdowns were attributed to brokers.

During a media conference following the results, Thorburn was asked whether NAB would take a tighter approach to its lending when AFTER

April

it came to the SME market.

Recent criticism has highlighted that a large number of brokers have been simply using the Household Expenditure Measure benchmark to work out a borrower’s living expenses. Many lenders are now working on the methods used to check expenses to accurately reflect a borrower’s true living costs.

Thorburn said NAB would not “back off because of scrutiny or noise”, as he believed the bank was doing the right thing.

He added: “We will continue to learn and get better. I believe we’ve got a good approach to mortgage lending in terms of income verification and expenditure, so I think we do do lending right, and we will

continue to lend to our clients where it is appropriate to lend.”

The bank announced in February that it would be changing its maximum loan-to-income ratio from eight to seven. Thornburn was asked whether this reduction would have an impact on revenue, but he said he believed other factors would have a greater effect.

He said, “I think the pressure on our housing revenue and housing growth … is mainly going to come from slower housing credit growth and continued competition for clients in the marketplace, and therefore margin compression.

I think that will be the major impact, rather than this loanto-income piece.

“We’re working with APRA on that, and they’re working with the industry; but the number [of loans] that are over seven times [income] is very small – it’s 3% of our flow.

And clearly what we’re doing with those clients is we’re going through a very rigorous process, like we would for anyone.”

NEWS

LENDERS ONLINE LENDERS MORE COMPETITIVE THAN BANKS lenders offer the most competitive home loan rates, according to comparison site Mozo.com.au. Research shows that an average customer at one of Australia’s big four banks could save more than $2,500 a year by switching to an online deal, up from $2,250 a year ago. Furthermore, it found that online lenders are cutting interest rates to offer better deals, yet only 27% of consumers said they would be willing to take out a home loan with an online lender.

ONLINE

NON-BANK MOVES INTO NEAR PRIME Mortgages has entered the nearprime space, cutting rates by as much as 225 basis points across all products. The move was enabled by the recent acquisition of Bluestone’s Asia-Pacific operations

by Cerberus Capital Management.

“We’re now in an ideal position to aggressively sharpen rates based on the new line of funding and pass on considerable net benefits to brokers and end users alike,” said head of sales and marketing Royden D’Vaz. BLUESTONE

CBA RESPONDS TO APRA REVIEW AND RECOMMENDATIONS Review into CBA concludes that “continued financial success dulled the senses of the institution” review into the

APRA’S Commonwealth Bank of

Australia has found that “continued financial success dulled the senses of the institution”. Its report listed issues such as a widespread sense of complacency; a reactive stance in dealing with risks; being insular; and not learning from experiences and mistakes.

Other points included unclear accountabilities, overly complex and bureaucratic decision-making processes, and a remuneration framework that, until the AUSTRAC action, had little sting for senior managers and above when poor risk or customer outcomes emerged.

CBA has accepted an enforceable undertaking, under which the group’s remedial action will be

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monitored. APRA has also applied a $1bn add-on to CBA’s minimum capital requirement.

APRA’s recommendations focused on five key areas: more rigorous board and executive committee level governance of non-financial risks; exacting accountability standards reinforced by remuneration practices; a substantial upgrading of the authority and capability of the operational risk management and compliance functions; injection into CBA’s DNA of the “should we?” question in relation to all dealings with and decisions on customers; and cultural change that moves the dial from reactive and complacent to empowered, challenging and striving for best practice in risk identification and remediation.

APRA chairman Wayne Byres said the report showed CBA’s governance, culture and accountability frameworks and practices needed considerable improvement.

“Regaining community trust will require time, hard work and an undistracted risk and customer focus and [APRA’s] recommendations should assist the CBA board and staff in translating CBA’s undoubted financial strength and good intent into better meeting the community’s needs and expectations,” Byres said.

CBA CEO Matt Comyn said of the report: “It is confronting to read, and it is critical in a number of areas.

I also think it’s a very fair and balanced assessment of the issues that we’ve been facing. I think the panel have done an excellent job at getting to the heart of the issues.

I think it’s a very helpful road map for us for the future, and we’re going to get on now with implementing the recommendations, in full, which I hope will go towards restoring confidence and trust in the Commonwealth Bank.”

“Westpac’s mortgage book continues to perform well.

Our mortgage delinquencies and losses remain low, both relative to historical and industry averages” Peter King CFO, Westpac

NEWS

MARKET: BUDGET ROUNDUP FINTECH INVESTMENT ENJOYS A BOOST fintech sector is to benefit from a $44.6m spending spree over four years, providing a boost to open banking. However, Beau Bertoli, joint CEO of small business lender Prospa, said more could be done.

“It’s great to see the government continuing to support and invest in Australia’s fintech sector.

However … promoting the ability of non-banks to access lower-cost wholesale funding would have fundamentally levelled the playing field in the industry.”

AUSTRALIA’S

ASIC’S $10M WOMEN’S WINDFALL is on track to receive a grant of $10m in 2018/19 to “support initiatives to enhance female financial capability”.

Additionally, ASIC will receive a further $10.6m over two years under the budget, while APRA is on track to receive a “top-up” of $2.7m in 2018/19, offset by increased levies on the industry. ASIC’s total budget estimate for the next 12 months is reported to be $37m, compared to APRA’s $83m, and the new Australian Financial Complaints Authority will receive $1.7m.

ASIC

“Net debt will fall to 3.8% of GDP over 10 years. We’re getting the budget back into balance and building that with a stronger economy” Scott Morrison Australian Treasurer

6

HOUSING ISSUES TAKE A BACK SEAT IN FEDERAL BUDGET Initial reaction sees the industry “disappointed” by avoidance of housing affordability in Scott Morrison’s budget Scott Morrison delivered on 8 May what could be his last federal budget ahead of the next election, with a huge focus on tax cuts and transport infrastructure spending.

While some funding has been given to the Pension Loan Scheme and the tax cuts might be beneficial in helping living standards, commentators have said it is not enough.

HashChing CEO Mandeep Sodhi said, “I’m disappointed by the complete lack of attention that the federal budget gave to housing affordability. Last year’s measures, such as the Super Saver Scheme and the downsizing incentive for retirees, didn’t go far enough in terms of making it easier for TREASURER

buyers in Australia to purchase their first home.”

Real Estate Institute of Australia president Malcolm Gunning noted the lack of discussion around housing affordability and supply, but said the budget did help in some way.

“Whereas housing affordability was a centrepiece of the 2017 budget, there was nothing in this year’s budget that directly addressed this,” Gunning said.

“It was, however, pleasing to see that the government recognises the important role that the current taxation arrangements for negative gearing and capital gains tax play in increasing supply, keeping rents affordable and easing the burden on social housing by

leaving these unchanged.”

Gunning said the budget’s approach recognised the state of the property market and the impact APRA’s measures have had in cooling the market, particularly in Melbourne and Sydney, and the Treasurer has seen no reason to make any further adjustments.

He added, “A boost to infrastructure spending, modest improvements in housing income for lower-income earners, continued tax write-offs for small to medium businesses and growth in employment can be expected to be mildly expansionary, particularly for regional economies.

“The good news for homebuyers is that the budget is not expected to put pressure on interest rates as inflation is expected to remain within the RBA’s target zone. This expected interest rate stability comes at a time when housing prices in some of our major cities are showing signs of easing, leading to improved affordability for first home buyers.”

FEDERAL BUDGET 2018/19 Source: CommSec

Plan for a stronger economy

-40%

Projected deficit

Government debt

Government receipts

Government payments

Projected GDP growth

Infrastructure spending

Projected inflation

Iron ore forecast

$14.5bn

$350bn

$474bn

$485bn

3.00%

$25bn

2.25%

US$55

18.4% of GDP

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NEWS

TECHNOLOGY

NAB ROLLS OUT DOCUSIGN FOR BROKERS the latest in a series of digital enhancements from NAB, the major lender has introduced DocuSign. GM of broker distribution Steve Kane said, “By giving brokers the ability to have customers digitally sign their upfront documents, we are making the home loan process simpler, easier, and more convenient. We are confident this new tool will go a long way to help create a more streamlined process for brokers and for customers.”

IN

FITBIT-STYLE FINANCE APP LAUNCHED

BY SYDNEY-BASED FINTECH CashDeck is positioning itself ahead of the fintech curve with white label tech that’s designed to put consumers in control of their finances CashDeck has launched what it dubs the financial equivalent of a Fitbit ahead of an anticipated shift in consumer behaviour and financial literacy.

Credit Ready provides users with regular reports showing whatever financial data they wish to keep track of. They will have transparency over such products as their super, categorised expenses, goals, bank fees, property valuations, card balances, mortgage repayments and more, all in real time.

All of CashDeck’s products can be white-labelled and customised, helping financial advisers and mortgage brokers to leverage the technology.

SYDNEY-BASED

Reinforcing the relevance of Credit Ready, Owen Joyce, chief commercial officer at CashDeck, predicts the royal banking commission’s investigations into the finance industry will enhance financial literacy among consumers.

“The sector isn’t waiting for the end of the commission; change is happening already. Look at how quickly the banks responded to the living expenses spotlight,” he said.

“What this means is that borrowers can no longer operate in ‘best guess’ mode; they will need to understand, prove and be able to explain their financial behaviours if they want to get credit.”

As well as reporting, the app can proactively recommend ways to improve finances, according to chief

technology officer Wayne Robinson.

He said, “The app can notify the user when it thinks they should take an action that will help them.

The innovations we’ve introduced mean that users can be as passive or active as they want to be. If a user just wants a regular report to stay on top of things, they can get that. If a user wants to be alerted to potential actions they can take, they can get that too.

“The app can instruct the user to connect with their adviser based on a goal they create, or it can suggest they review their energy provider based on a bill they’ve just paid.

The possibilities are endless.”

Brokers and advisers can assist clients by easily accessing bank statements and gathering 12 months of transaction data from client accounts to provide a detailed analysis across all key spending categories. The broker will receive a list of transactions, a table of categorised spending, an income versus expenses analysis by month, and other key data.

BROKERS ON GOING DIGITAL Source: MyState Bank survey of its national broker network

Over 47% Over 50% of brokers are not concerned about online broking platforms

30% are seeking to improve digitisation in their business

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believe existing non-digital business models are competitive

13% believe competition from online platforms is not significant to them

Over 22% are adopting new technology and software to remain competitive

Over 5% are seeking to partner with fintech companies

15% said mobile payment solutions were rarely mentioned by customers

ONLINE LENDER REPORTS 42% LOAN GROWTH Wisr Limited has reported 42% growth in its origination of personal loans in the latest financial quarter.

It was the company’s largest quarter for loan originations since Wisr, formerly known as DirectMoney, began in 2014. Loan originations have continued to grow over the financial year, up 20% in the first quarter and 79% in the second.

The news follows Wisr’s 2016 restructure, which included a new chairman, CEO, key executives and business direction.

NEO-LENDER

NEWS

R E G U L AT O R S

BROKERS BANNED FOR $17M FRAUD mortgage brokers have been permanently banned

by ASIC after providing false employer letters and payslips to Westpac Banking Corporation, extracting more than $17m in home loans from the lender. Brokers and directors of Sydney Global Investment Pty Ltd, Xiaoyi (Jeff) Zhao, Jun (Leo) Ma and Liang (Victor) Zhang, were found to be knowingly or recklessly involved in the provision of false documents.

Sydney Global Investment formerly operated as X Finance Group.

THREE

DISPUTE RESOLUTION SCHEME RECEIVES FINAL APPROVAL AFCA will replace the Financial Ombudsman Scheme, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal approval has been granted for the new Australian Financial Complaints Authority (AFCA). Minister for Revenue and Financial Services Kelly O’Dwyer authorised Australian Financial Complaints Limited to establish and operate the dispute resolution scheme.

AFCA will begin accepting new complaints on 1 November.

AFCA will replace the two existing ASIC-approved external dispute resolution schemes: the Financial Ombudsman Scheme (FOS) and the Credit and Investments Ombudsman (CIO), as well as the statutory Superannuation Complaints Tribunal.

All financial firms required to hold membership of an external dispute MINISTERIAL

APRA CONDEMNS CBA ‘COMPLACENCY’ report on CBA has found the bank’s “continued financial success dulled the senses of the institution”. The report listed issues such as a widespread sense of complacency, a reactive stance in dealing with risks, being insular, and not learning from experiences and mistakes. CBA responded to the final report by accepting an enforceable undertaking under which the group’s remedial action will be monitored. APRA has also applied a $1bn add-on to CBA’s minimum capital requirement.

resolution scheme will be required to join AFCA by no later than 21 September. Ninety-eight percent of current members of FOS have already completed the annual assessment and member declaration.

The inaugural AFCA board, to be chaired by former senator Helen Coonan, will assume responsibility on 4 May for the implementation of the new scheme. The AFCA board will comprise Helen Coonan, four directors appointed by the Minister, and six ongoing directors from the AFCL transitional and FOS boards.

One of the early actions of the new AFCA board will be to consult stakeholders on the proposed AFCA rules and on an interim funding model for the new scheme.

As part of the interim funding

arrangements, there will be separate and appropriate arrangements for the funding of superannuation disputes. This will be based on using the parameters applied for the current APRA levy calculations.

In a statement supporting the decision, ASIC said, “ASIC welcomes the authorisation by the Minister for Revenue and Financial Services of the operator of the new single external dispute resolution scheme for consumer and small business complaints: the Australian Financial Complaints Authority.

“It will operate significantly higher monetary and compensation limits for consumer and small business complainants, as well as provide enhanced access to free dispute resolution for primary producers.

ASIC will oversee the operation of AFCA and receive reports including about systemic issues and serious contraventions by financial firms.”

The AFCA board will continue working with the CIO board on arrangements for a transfer of its members and operations to AFCA.

HIA AFFORDABILITY INDEX BY CAPITAL CITY, MARCH 2018 QUARTER

APRA’S

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Source: HIA, ABS, CoreLogic

120 110

110.0

More affordable

100 90

92.2

80

96.9

92.3

99.2 87.5

70

70.7

60 50 40

62.4 53.1

30

Sydney

Melbourne Brisbane

20-year average

Adelaide

HIA affordability index

Perth

Hobart

Darwin

Canberra Average of 8 capitals

MARKETING UPDATE

UNDERSTANDING YOUR CUSTOMER IS THE KEY TO UNDERSTANDING YOUR MARKETING TACTICS Joanne Thrift, chief marketing officer at Pepper Money, speaks about the importance of knowing your customer ahead of the lender’s fourth annual Insights Roadshow

is important to any business, but it’s more important to consider the strategies that are right for your business, as it is certainly not one size fits all.

To help you select the right marketing tactics for your business, you need to know and understand your customer.

Having a clear picture of the sort of customers you want to attract is the key to working out how to attract them and how to build lasting relationships.

Many businesses today develop customer personas – these are a representation of your ideal customers, including customer demographics, their needs, behaviours, motivations and goals.

When building your customer persona, it should be based on real data that you may have to hand from looking at your existing customers or doing market research.

If you have a clear picture of where your ideal customers live, what profession they have or their age, this can help you work out what sort of marketing tactics might suit them.

Looking back at the profile of your existing customer base is another good way to help develop your customer personas – particularly if you want to find more customers in similar situations with similar borrowing needs. This exercise of looking back at your past customers should also be the catalyst for considering customers you have turned down in the past because they required solutions that you did not offer.

MARKETING

When it comes to the motivations and goals you attach to your customer personas, speaking to existing customers that you have helped in the past is a good way to understand how and why they came to you in the first place.

Incorporating specific statements such as “referred through my accountant” or “heard about you through a friend and then I went on to your website” in your customer personas, will give you some clear signals for the type of marketing activity that is important to them and what works.

Thinking about your customer persona is also a very useful exercise when you are considering the people you hire, the processes you follow and everything your customer sees when they are interacting with your business, such as your office or your branding.

Using the customer personas makes it easier to imagine the level of customer service you need to provide or the training your staff need to handle their requirements.

Delivering the same standard of service to your customers repeatedly can save time and help with meeting standards, but it is also about looking at the suitability of your processes for each customer persona to ensure you are easy to do business with.

By thinking deeply about the customers you want to attract, the signals will become a lot clearer about the sort of marketing activities you should undertake and those that are not appropriate.

At the upcoming Pepper Insights Roadshow, Joanne will be painting a picture of where customers’ mindsets are at in relation to their household finances and the financial industry at large, which is an important context for understanding customers and the services you offer as a mortgage broker.

MARKETING IN PRACTICE Persona: Bill, 45 Location

Seven Hills, Blacktown Profession

Mobile car mechanic Borrowing need

Cash for business purposes Behaviours

“I am in my car 24/7, so I prefer to speak with someone on my mobile between jobs” Motivations

“My accountant tells me everything I need to know about my finances” Goals

Timely response and certainty

How to market to Bill, based on his unique needs Location

Promote our Seven Hills Office Profession

Advertising in a mechanic’s publication, such as the Car Mechanics Association magazine Borrowing need

Staff should have small business knowledge Behaviours

His constant travelling means it would be easy to reach Bill via local radio advertising and a mobile-friendly website Motivations

Supply accountants in the area with a Referral Marketing kit Goals

Because Bill is a time-strapped business operator it is important to respond within 24 hours

INSIGHTS ROADSHOW DETAILS Melbourne 13 June • Adelaide 14 June • Perth 19 June • Sydney 20 June • Brisbane 21 June To register for the roadshow, go to pepper.com.au/broker/insights

FE AT URES

SPECIAL REPORT

BANKROLLING THE BUSINESS BOOM As business conditions gain strength across Australia, Steve Lawrence, VP head of major commercial clients at La Trobe Financial, is supporting brokers in capitalising on the rising demand for commercial finance

released this year by the ABS confirm there were more than 2.24 million trading businesses in Australia at the end of 2017, an increase of 3.1% on June 2016, making it the fourth consecutive year of business formation growth.

In April, the NAB business confidence index increased to match the highest reading since the index began in 1997. Profitability gained six points to reach +22 and sales jumped seven points to a high of +28, with activity in mining, finance, business, property and construction driving the outcomes. As a result, economic growth is on track to top 3% this year and next.

In providing the finance that allows Australia’s businesses to boom, La Trobe Financial has seen a marked increase in demand, specifically across its commercial lease doc and Lite Doc products as well as construction and development finance.

“While some financiers appear to be pulling back and controlling their books more tightly, La Trobe Financial continues business as usual in this space, delivering on our promise to assist those underserved by traditional lenders,” says VP head of major commercial clients Steve Lawrence.

“We provide solutions that some financiers cannot achieve in the current environment, with flexible outcomes that meet market demands.”

In doing so, the non-bank has picked up eight industry awards over the last 12 months, including MPA’s Best Non-Bank award and three recognitions in the International Alternative Investment Awards.

Testament to the quality of its solutions, La Trobe Financial is also FIGURES

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ranked as a top 10 lender in the commercial space by the leading aggregation groups.

Most recently, SQM Research released its annual review of the Australian mortgage trust sector, in which La Trobe Financial took the top spot for two funds, based on the lender’s strong distribution network and geographic – as well as client – diversification. The 12-month term investment received 4.25 stars, and the peer-to-peer select investment account came second with 4.0 stars, both achieving a ‘superior’ rating.

Creating a domino effect, a subsequent recalibration of market share is now taking place between the traditional banks and other non-bank credit providers, adding further strength across the commercial lending sector.

La Trobe Financial plans to capitalise on its position in a number of ways. The lender currently has

one of Australia’s broadest ranges of products and solutions of all the non-banks in operation, including a $2.2bn retail investor credit fund.

“We are seeing growth in all these areas. It goes back to us providing a solution to brokers in terms of speed to market and being able to connect them to our experienced commercial credit team,” Lawrence says.

Striking while the iron is hot, the lender’s maximum commercial loan will soon expand to $50m and average commercial loan terms will be extended from three to five years currently to 30 years, with further innovations planned in the digital space.

Commercially minded The advancements at La Trobe Financial coincide with a number of reviews of the financial services industry, including those of the Hayne royal commission, the Harris

Productivity Commission and the ACCC Residential Mortgage Products Price Inquiry, to name a few, and their influence is noted by Lawrence. Faced with a series of regulatory changes, brokers have been left searching for client solutions while leadership from the industry wanes.

“At La Trobe Financial, we assume the uncertainty emerging as a result of these inquiries and other market factors will stay with us for at least the next three years – it’s a watershed moment for the industry,” says Lawrence.

However, as other lenders continue to shy away from providing much-needed advice and guidance, Lawrence is happy to step up. While increased market share is the end goal for La Trobe Financial, the method for achieving that result is based on supporting brokers in transforming challenge into opportunity.

“We are well placed to assist brokers in this space as we make our commercial loan products accessible for all finance brokers in an easy-to-use, familiar format, regardless of experience,” he says.

“Our products are engineered to ensure first-time users can write them confidently and competently, and we connect our key decision-

MILESTONES OF 66 YEARS IN BUSINESS La Trobe Financial Foundation Trust formed to assist the community through education grants

1952

La Trobe Financial is founded

1978

La Trobe Financial delivers Australia’s first Lite Doc® loan

1986

National Award for Innovation in Housing Finance presented by former Australian prime minister Bob Hawke

1990

2018

Strategic partnership with New York-based Blackstone Group, one of the world’s leading asset management firms, with US$450bn in AUM. Blackstone took an 80% equity stake in the business

In partnership with

Steve Lawrence, VP head of major commercial clients

makers directly with brokers from the first point of contact. Our turnaround times are far superior to most, and we provide a personalised relationship service model to treat each application on its merits and not apply a tick-box approach.”

Lawrence reports a steep rise in repeat business from the broker channel, with a number of brokers who previously only used La Trobe Financial “once or twice every six months” now frequently turning to the lender.

In addition, those who have never brokered a loan with La Trobe Financial are now turning to the non-bank for such USPs as its personal senior credit analyst service.

These trends are expected to drive the volume of commercial loans written by brokers from less than 20% currently to “much closer to those in the residential mortgage space”, which accounts for 55.7% of the market.

“This is because borrowers are

looking for a solution to their commercial needs, and brokers who have access to a number of financiers’ products are best placed to be able to meet the borrower’s needs and requirements,” Lawrence says.

broker’s business. Most importantly, at La Trobe Financial, brokers can talk to decision-makers directly to work deals through; and, subject to meeting all credit criteria, that means they can meet the needs and requirements of

“We provide solutions that some financiers cannot achieve in the current environment, with flexible outcomes that meet market demands” Steve Lawrence, VP head of major commercial clients As La Trobe Financial’s market footprint grows, a number of new senior managers responsible for client partnerships have been appointed to meet demand and service expectations from brokers.

“Speed, flexibility and certainty are of paramount importance to a

the borrower,” Lawrence says.

Industry bodies such as the MFAA, the FBAA and the Commercial & Asset Finance Brokers Association of Australia, along with leading aggregators, are working hard to promote the benefits that diversification into commercial

lending can provide for brokers.

La Trobe Financial is supporting this wider industry drive by providing education, training and accessibility to a wider suite of products.

These developments are essential at a time when Lawrence says many finance brokers feel underserved by lenders, often due to volume and accreditation barriers.

Helping to expand the business capabilities of brokers as well as their commercial clients – not to mention its own bottom line – La Trobe Financial has aligned its broker engagement strategy with its wider operational objectives.

“Giving brokers access to commercial loan products forms a key part of our strategy and is extremely important to us,” Lawrence says. “It goes to the very heart of our mission to assist underserved markets, and it would be very surprising if the broker market share of commercial didn’t continue to rise in the short, medium and long term.” AB www.brokernews.com.au

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NE WS ANALYSIS

TEMPTING THE INVESTORS BACK As APRA starts to hand control for investor lending back to individual ADIs, Australian Broker asks if the nation’s appetite for bricks-and-mortar investments is enough to reinvigorate its cooling property markets

month, APRA confirmed it would remove the temporary 10% benchmark on investor loan growth in favour of “more permanent measures to strengthen lending standards”.

Introduced in 2014 as one of a number of actions to reduce higher-risk lending and improve practices, the removal of the cap is not an industry-wide measure.

In order to comply with APRA’s growth limits, each ADI must provide assurances on the strength of its lending standards in three key areas: investor loan growth over the previous six months; policies and serviceability; and lending practices.

For APRA chairman Wayne Byres, the removal of the cap is a marker of progress, although he maintains that “there is more to do to strengthen the assessment of borrower expenses and existing debt commitments, and the oversight of lending outside of policy”.

In a statement, Byres said, “The temporary benchmark on investor loan growth has served its purpose. Lending growth has moderated, standards have been lifted and oversight has improved.

However, the environment remains one of heightened risk, and there are still some practices that need to be further strengthened. APRA is therefore seeking assurances from ADI boards that they will maintain a firm grip on the prudence of both policies and practices.”

The announcement coincides with a series of emerging trends in the housing market. In Melbourne and Sydney – two cities where LAST

16

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investor appetite drove the market to a fever pitch, prompting warnings of a bubble – a drop in buyer demand has cooled house prices, and further declines are expected.

Some economists predict these will

4.9% in Melbourne and 2.3% in Perth, with further, albeit marginal, declines in Brisbane and Adelaide.

In Sydney and Melbourne’s auction markets, the latest clearance rates are down a full 10% year-on-year.

“The cap’s removal may increase interest in refinancing and ... new purchases, which may see a surge in demand for investment loans” Natalie Sheehan, COO of Better Choice Home Loans be as high as 5%, and the hard data backs them up.

Figures from CoreLogic confirm that in the last 12 months prices have dropped by 2.6% in Sydney,

Further, ANZ chief executive Shayne Elliott says tighter lending standards as a direct result of the royal banking commission will make it more difficult for the

average Australian to obtain a home loan, placing more pressure on the investment market.

“Would [APRA’s] action be because the big four banks and second-tier lenders have seen a massive drop in investment activity?” asks Kevin Lee, buyer’s agent and mentor at Smart Property Adviser.

“With the royal commission having claimed a number of scalps after the first round of hearings, this will be interesting, as not one lending institution will dare to lower their lending standards or credit assessment criteria to facilitate ramping up this side of their mortgage book.”

Australia’s investors Loan approval data published by the RBA (see graph below) demonstrates a strong appetite for

INVESTOR SHARE OF HOUSING LOAN APPROVALS Source: ABS, RBA

% 40

Total approvals – Australia

30 %

NSW

40 30

Rest of Australia 20 2003

2007

2011

2015

investor loans in Australia since the early 2000s, with the market’s only previous slowdown attributable to the GFC. Approvals increased from a little over 30% in 2011 to almost 40% in 2015, with the trend most pronounced in NSW. As much as 83% of all investment property in Australia is owned by small-scale investors – typically married couples with a high income and existing family home. CoreLogic data published in April confirms investors represent around 51% of new mortgage demand – well above the long-run average of 37% and in spite of tougher serviceability criteria and mortgage rate premiums. Demand from these investors, along with foreign cash buyers, is also driving new construction projects.

“With lower rates perhaps closer to those offered to current owneroccupiers on a principal and interest basis, the cap’s removal may increase interest in refinancing and potentially new purchases, which may see a surge in demand for investment loans,” says Natalie Sheehan, COO of Better Choice Home Loans.

Those who harbour ambitions to own multiple properties have likely seen portfolio growth dampen over the last two years. However, the stage is now set for these investors to start working towards their long-term goals once again, providing they meet new criteria around rental income, expenses and other credit obligations.

Crucially, in a more complicated marketplace brokers will have an important role to play.

“Responsible lending means

brokers are required to provide a loan that is not unsuitable for the consumer,” Sheehan says.

“Brokers are required to undertake a detailed fact-find and due diligence surrounding areas such as an applicant’s living expenses, serviceability and loan suitability. Working with brokers to satisfy consumer demand whilst meeting our obligations as a lender will remain unchanged.”

One emerging hotspot for investors

APRA’s limits and we now have the capacity for growth.”

Elsewhere, other lenders are similarly prepared.

“We have always maintained an appropriate mix of owner-occupier and investor loans, including before the APRA guidelines were announced in 2014,” says Homeloans GM of third party distribution Daniel Carde.

“Following this announcement, we will continue to originate

“Lending growth has moderated, standards have been lifted and oversight has improved. However, the environment remains one of heightened risk” Wayne Byres, APRA chairman is Hobart, Tasmania. In the midst of a housing boom that has seen property price growth rise by 17% in the past year, and an increasing number of first home buyers, demand is driven by interstate relocations and investors tempted by the high yields that can be achieved on holiday rentals and secondary properties.

Figures from MyState Bank confirm that interstate buyers comprise 21% of Tasmanian house sales currently, and almost half of those are purchased as investments.

Paul Ranson, CEO of Tasmaniabased Bank of Us, says, “Prior to the APRA announcement, we advised our broker network that we’ve been successful in managing our investment lending to comply with

investor loans well within our desired threshold. We are comfortable with our approach to this type of lending.”

As APRA hands responsibility back to individual ADIs, the jury is out on how this could influence the market, overall property trends and, more importantly, loan approvals.

While strict criteria will underpin the investment segment in future, historic demand shows that Australians are unlikely to step away from property investments, and the loans that fund them are only part of the story. What remains to be seen is whether the mechanisms introduced to reinvigorate the market will be enough to reheat the nation’s cooling property prices. AB

AUSTRALIAN HOME LOANS: RECENT HISTORY OF REGULATION Source: CBA half-year report, February 2018

H1, 2015 yy Increased serviceability buffers yy Reduced reliance on less stable income sources H2, 2015 yy Income-scaled living expenses estimate in serviceability test yy Limits on lending in high-risk areas H1, 2016 yy Restrictions on lending reliant on foreign income

H2, 2016 yy Further limits on use of rental income and negative gearing H1, 2017 yy LVR restrictions on interest-only and investment lending yy Limits on lending for high-risk apartment areas

H2, 2017 yy Adjustments to interest rate buffer on existing mortgage commitments H1, 2018 yy LVR restrictions and reduced reliance on rental income for lending in selected postcodes and for certain security types

www.brokernews.com.au

17

PEOPLE

Have an interesting deal?

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

rebecca.pike@keymedia.com

A BIG DEAL

Graeme Salt, broker and consultant at Origin Finance, explains how he coordinated three loans so a young couple in search of their first family home could tap the bank of mum and dad

THE FACTS

Loan size and term Three loans totalling $1.5m for 20 and 30 years

Client

Goal

Location

Lender

Aggregator

Young couple in their 20s and the parents of the male applicant in their 60s

To assist the young couple in buying their first home

Sydney’s Bondi, Caringbah and Revesby suburbs

La Trobe Financial

Choice

THE SCENARIO

Mortgages for the self-employed can be challenging due to the unavailability of suitable documentation, and as a result many brokers often put self-employed applicants in the ‘too hard to handle’ category. However, with some careful consideration and due diligence, it doesn’t have to be that way.

A young couple were referred to Origin Finance by existing clients after facing this exact hurdle. Their ambition was to buy a home for around $1m that they could settle in and start a family.

The male applicant was a selfemployed carpenter, which usually isn’t an issue. However, he was also embroiled in a legal dispute with a major contractor and his business activity statement (BAS) showed a massive drop-off in income at a critical time in the financial year.

As a result, two tax returns showed a disproportionately low income, so a full-doc loan was out of the question. In addition, a low-doc loan would also have been challenging as the couple’s current lender needed the last 12 months’ of BAS paperwork, and this period straddled the massive shortfall, meaning we could not demonstrate servicing. Adding to these issues, the couple did not have much equity in their current property.

However, with the ongoing contractual dispute out of the equation, the client had a good financial track record, with excellent repayment histories on their current obligations.

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was very strong. But finding a nonconforming lender that would also do a family guarantee was the challenge.

Enter La Trobe Financial.

A few years ago, La Trobe Financial had briefed me on their Parent-to-Child (P2C) product; it’s a bit different to a standard parental guarantee loan but serves a similar function. Rather than the young couple having a loan secured against the parents’ property with the parents acting as guarantor, the P2C would allow the parents to invest cash in a La Trobe Financial fund, which would then lend the money to their son and his wife. The added bonus was that the parents were able to determine the rate the loan would be subject to.

The first step was to refinance, moving the parents’ mortgage to La Trobe Financial, with a modest top-up loan to provide a deposit for the new home. We also arranged a $680,000 top-up to be placed in the P2C fund, ready for when that perfect property came to market.

Finally, we arranged a $450,000 loan with La Trobe Financial that was secured against the new family home.

THE SOLUTION

To overcome these hurdles, we had to do two things: firstly, we needed to find a means of contributing more equity towards the purchase, and secondly, we had to prove the clients could service the loan.

THE TAKEAWAY

This really was a complicated scenario, and it took around eight months from the initial meeting to the couple moving into the house. Brokering the deal

The male applicant was a self-employed carpenter, which usually isn’t an issue.

However, he was also embroiled in a legal dispute

Graeme Salt Graeme Salt, broker and consultant, Origin Finance

Bringing some hope to the situation, the male applicant’s parents came forward to offer their assistance.

They fully backed the couple’s dream of buying their first family home and were prepared to offer a guarantee to help them.

The parents had plenty of equity in their home and a modest loan with a reputed bank. Unfortunately, that bank did not offer family guarantees, nor would it allow another bank to provide a second mortgage. This meant we would have to refinance the parents’ loan to tap into their equity.

Proving income for this was much easier as there were plenty of nonmainstream lenders who could clearly see from the male applicant’s last two BAS that in actual fact income

demanded project management skills and watertight communication so that everyone knew what was happening.

We had multiple meetings and teleconferences, and I even had one meeting in a park while my son walked the applicant’s dog!

However, the key component was trust.

I had to be satisfied that the parents were releasing equity knowingly, but I also knew the couple wanted to move as fast as possible so they could embark on this exciting phase in their lives.

Despite the long process, it was an incredibly rewarding deal. We created a solution that allowed the parents to support their son and daughter-in-law in acquiring that much-coveted family home; and, in the end, what else are families – and brokers – for? AB

www.brokernews.com.au

19

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IN THE NE WS

SPEAKING UP FOR BROKERS Last month Entourage Finance broker Vincent Moore penned an open letter to a columnist following his public critique of brokers. To Moore’s surprise, the outspoken journalist not only responded but accepted an invitation to discuss his thoughts over coffee debate following the royal commission. However, online comments posted by other brokers inspired him to respond.

“I thought someone had to step out and potentially open a dialogue with Scott in a positive light as

“There are many brokers, such as myself, who don’t even look at commissions when placing a client with a lender – I personally couldn’t even tell you what each bank pays us.”

Moore isn’t the only one concerned that negative coverage

“I thought someone had to step out and potentially open dialogue with Scott in a positive light as compared to pushing him further away” Vincent Moore

Vincent Moore, broker, Entourage Finance

haven’t had the easiest time in the mainstream media of late, following months of highly critical articles, most recently in response to the royal banking commission.

As their reputation in the eyes of the consumer takes a hit, many have countered the negative coverage with stories that reaffirm the broker’s role in the financial ecosystem. However, one broker went a step further last month when he penned an open letter to Scott Pape, aka the Barefoot Investor.

In a column published in the Herald Sun, Pape likened broking to social media – two industries that appear to be free at the point of access but, as recently discovered, can have very expensive consequences for the end user.

Drawing parallels between Facebook and the Australian finance industry, Pape twice wrote: “If you’re not paying for the product, you are BROKERS

20

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the product”. While the observation has previously been applied to everything from the dot-com boom of the 1990s to social media in the 2010s, when applied to broking it only tells half the story.

For Vincent Moore, broker at Entourage Finance, Pape’s comments were simply another contribution to the ongoing public

compared to pushing him further away, which might harshen his views even more,” he says.

While Moore generally considers himself a fan of Pape’s “antiestablishment views”, this time he penned an open letter that concluded with an invitation to the Barefoot Investor to discuss his musings further over coffee.

“In this case, I don’t think he has hit the mark. This may be due to a lack of understanding of some of the work brokers do or a past experience with a couple of poor brokers. As a result, he can often paint us all with the same brush and miss the value we bring to the table,” Moore says.

will impact public perceptions: more than 65% of brokers surveyed by MyState Bank said they were seriously or moderately concerned about the impact of the royal commission.

Reporting an “overwhelmingly positive response” to his letter, Moore has been contacted by brokers across Australia and, much to his surprise, even the Barefoot Investor himself, who accepted the invitation to meet.

“Scott was one of many people who commented. He said that he finds independent brokers invaluable and would love to meet up for a coffee and chat. Watch this space!” AB

BROKER REPUTATIONS UNDER THE SPOTLIGHT Source: Deloitte on behalf of MFAA and MyState Bank

Over 50%

88%

of mortgage borrowers depend on the services of a broker

of broker customers would return to the same broker

20%

Over 65%

of direct lender customers would not return to the same lender

of brokers are seriously or moderately concerned about the impact of the royal commission

DIVERSIFICATION UPDATE

Get involved in the discussion Share your thoughts at

brokernews.com.au

FROM THE FORUM

BRAD GARDINER LOOKS TO SLIPSTREAM TO HELP HIS CLIENTS BUILD WEALTH John Manciameli talks to Brad Gardiner, director of Newport Financial

Top comments from trending stories on brokernews.com.au

Brad Gardiner

AMP ‘STRENUOUSLY’ DENIES ALLEGATIONS AMP has “strenuously” denied Rowena Orr’s findings that the group should face criminal action. The group lodged a submission addressing evidence received by the royal commission on its fees for no service. AMP was accused of charging customers fees for a service it was not providing. The group has reaffirmed its apology in relation to this and has refunded 15,712 customers a total of $4.7m. It has also made several other changes to its practices. AMP was also accused of changing reports from independent law firm Clayton Utz a number of times before handing them back to ASIC as part of its own investigation into the matter.

I wonder how much the politicians are being fed to enable them to wear a muzzle. I had my super savings reduced to zero by fees for service I never received.

How can they continue to lie that it does not exist ... I guess for ASIC the word (un)Enforceable does not exist in their vocabulary because they themselves are in denial and a part of it!

At a Loss 04/05/18 12:42 PM

In other words we are waiting for an (un) Enforceable Undertaking slap on the wrist from ASIC, and everyone else should leave us alone. Good try, AMP. Anonymous 04/05/18 11:12 AM

Exactly, anonymous. I’d be careful pursuing that line if I was AMP. Tempting ASIC to go nuclear may not be the best idea at present.

Marty McDonald 04/05/18 11:18 AM

CEO and chair both resigned over this, rest of board likely to follow – they need to acknowledge and accept what’s coming, not use weasel words.

What first inspired you to help your clients with their investment property aspirations?

I’ve always had an interest in A property investment, and from a young age I dabbled in property as a personal pastime. This led me to buy and sell a considerable amount of properties and continue to pass this knowledge on to my family.

My background as a mortgage broker and lender naturally steered me into discussions with clients about exploring property investment as a way to build wealth.

Q

Why did you choose to work with Slipstream?

As an aggregator of investment A property research houses, Slipstream stood out in the crowded space of property investment as the perfect partner to help me navigate through the clutter and support my goal of helping clients to reach their financial goals.

The plethora of evidence-based data accumulated over a long period of time through the investment property research houses is so robust and allows you to really understand the investment opportunities available to clients with clarity.

Q

What are the key benefits of working with Slipstream?

Access to John Manciameli, an A expert in property investment, and the opportunities to network alongside other fellow industry professionals are unlimited. Slipstream’s service for brokers to learn how they can maximise the diversification of their business is unparalleled.

You also have a level of accountability to Slipstream as you have to comply with their strict compliance and use the systems and procedures Slipstream uses. This all helps mitigate against any

Q

John Manciameli

potential loss as much as possible.

One of the other main benefits is the ongoing learning and development opportunities working with Slipstream has provided. The PD days are very educational and have given me a heightened sense of confidence when talking to my clients about wealth creation.

What feedback have you received from clients you’ve worked with?

The feedback from my clients has A been excellent. Even if there’s a small ounce of doubt at the start of the conversation, it doesn’t last once I’m able to provide the detailed statistical information shared with us from the accredited investment property research houses and buyers’ agents.

We’re also able to show our clients the worst-case scenario, which allows them to know we’re only ever mitigating against the potential risks. At the end of the day, we empower our clients to make the decision themselves by giving them access to the independently verified experts.

Q

How much has Slipstream impacted the bottom line of your day-to-day business?

It’s still fairly early days for me, but A I can clearly see how investment property referral as a new diversification stream will benefit my business immediately.

Q

What’s the most important piece of advice you would share with other brokers?

Talk to John, talk to some of the A other experts in the investment property space, and give yourself some time to think things over.

In the end you will see the benefits of investment property referral if you’re serious about growing your business.

Q

Karma 04/05/18 11:38 AM

www.brokernews.com.au

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OPINION

PREPARING FOR THE UNKNOWN Following recent moves by the Treasury to support APRA’s regulation of non-ADI lenders, Canstar group executive of financial services Steve Mickenbecker explains why home lending conditions could be getting tougher for the sector HOME LOAN INTEREST RATES – NON-ADIS VS BIG FOUR Source: www.canstar.com.au

Owner-occupiers 6.00%

Non-ADIs

5.50% Interest rate (Avg.)

Investors

Big four

5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00%

Principal & interest

moves to limit growth in investment and interest-only lending have been with us long enough for the dust to settle, and as an industry we’ve been working through the reaction of lenders who used pricing to ‘ration’ lending in these categories. They went further than just repricing new lending, though, and also passed rate increases through to the back book.

The outcome has been that, from virtual parity a year ago, an investor paying interest only on a package loan with the major banks is now, on average, paying 104 basis points more than an owner-occupier paying principal and interest. An owner-occupier paying interest only is also on a higher rate, 56 basis points above one paying P&I. Investors can’t avoid the investment loading. Unless they move into the house or sell it, they remain investors. However, the interest-only loading can be avoided by both investors and owner-occupiers by converting to P&I. The reality, though, might be that affordability will inhibit the ability to take on principal reductions, a likely reality for recent first home buyers in particular, for whom the out-of-cycle rate increase looks inevitable.

The complication to this has been that there is one group of lenders who have not had to react with quite the same zeal as the

Interest only

Principal & interest

banks. That is the non-ADI group of lenders who are not regulated by APRA. I say ‘‘quite”, as the non-ADIs are still subject to ASIC regulation, as well as the overview of warehousing providers, end

APRA’S

22

www.brokernews.com.au

Interest only

investor paying P&I can expect to pay, on average, 58 basis points more than an owner-occupier also on P&I, compared to an average of 35 basis points at non-ADIs. Putting two layers of icing on the cake, investors on interest only at the big banks are, on average, paying 104 basis points more than the owner-occupier on P&I repayments. The same loading at non-ADIs is 73 basis points. This is probably the statistic that matters most.

Not surprisingly in light of these rate differentials, there is a belief that while the ADI sector has contracted lending in the areas targeted by APRA and has met and overshot targets, the non-ADI group has expanded in those lending areas. Of course, APRA reporting does not include the non-ADI sector, meaning that hard data is difficult to come by.

APRA is not taking that lying down, and the Treasurer introduced legislation in late March to provide APRA with powers to make rules for non-ADI lenders. Expect one ring to rule them all.

The other point of interest is the average owner-occupier P&I rate, which could now be considered the base rate for home lending. It is 0.76% lower, on average, for non-ADIs compared to the big four average package rate. Non-ADIs have been able to maintain price leadership across all four lending categories.

The non-ADIs, largely dependent on wholesale funding, have been raising funds in a favourable mortgage-backed securitisation market for quite some time now. But rates overseas are on the up – 12-month LIBOR for March 2018 was up 95 basis points on the start of 2017. It is only a matter of time before

The loadings the big banks and the non-ADIs are applying to interest-only above P&I are not so dissimilar

Steve Mickenbecker Group executive of financial services, Canstar

investors for securitised bond raisings and ratings agencies.

Irrespective of this, the outcome has been a pricing differential.

The loadings the big banks and the non-ADIs are applying to interest-only above P&I are not so dissimilar. Owneroccupiers with interest-only loans at the big banks are paying, on average, a 56 basis point loading, compared with 43 basis points at non-ADIs. Investors are paying, on average, 46 basis points loading at the big banks, compared to an average of 38 basis points at the non-ADIs. But that is where the similarity ends.

The major point of difference is with the loading for investors. At the big banks, an

securitisation issues come under pressure.

Conditions look likely to get tougher for the non-ADI sector on a couple of fronts in the not-too-distant future.

On the funding front, bankers have long understood the advantage of diversified funding sources, to avoid the boom or bust – remember the GFC. The challenge then for non-ADI lenders was how to diversify funding.

As for APRA regulation, it may be the solution, not the problem. Will it mean the boundary between non-ADI and ADI melts, potentially opening up new funding sources for the agile of the now-non-traditional sector? A question for another day. AB

19 October • The Star Sydney

NOMINATIONS OPEN 28 MAY Event partner

Award sponsors

Official publications

Organised by

www.australianmortgageawards.com.au

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23

PEOPLE

MOVERS AND SHAKERS

BETTER CHOICE BOOSTS TEAM

Lender announces the appointment of a new SA relationship manager and NSW state manager following its recent acquisition of a Queensland-based financial services group

VIRGIN MONEY NAMES NEW HEAD OF THIRD PARTY lender Virgin Money, which has built a home loan portfolio of more than $1.2bn in just under two years, has appointed Christian York to head its third party distribution team. With more than 14 years’ experience in financial services, York has extensive reach in aggregation and business development and joins Virgin Money from Bankwest.

The lender has a national network of more than 4,300 mortgage brokers accredited in partnership with AFG, PLAN, Connective, Aussie and Choice.

NON-MAJOR

Simon Adler

Home Loans has continued to drive momentum in its national expansion strategy with the announcement of a new South Australia relationship manager and a new state manager for New South Wales.

The key sales team appointments follow the recent acquisition of the $725m wholesale portfolio of Queensland-based financial services group NationalCorp Home Loans.

Simon Adler has been named as state manager for NSW. Previously with Gateway Credit Union, Adler has more than 30 years’ experience in the financial services industry.

Perth-based Paul Grant is the new relationship manager responsible for SA, the Northern Territory and Western Australia.

Grant is also highly experienced, with more than two decades in the financial services sector. He joins Better Choice from Oak Lending, BETTER CHOICE

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Paul Grant

prior to which he spent more than seven years at Australian First Mortgage as a regional manager for WA and the NT. Announcing the appointments, COO Natalie Sheehan said Better Choice was focused on continuing to grow its business as it looked to further boost the sales team.

A specialist lender, Better Choice has recently reported record volumes under its prime product suite, which offers competitive interest rates for owner-occupier and investment home loans, according to Sheehan.

“We are experiencing strong demand from both owneroccupiers and investors, which highlights how a non-bank can be a real alternative to the major banks,” Sheehan said.

“With nine funding lines, Better Choice offers an increasingly diverse range of solutions to our

introducers. We can lend to investors up to 95% LVR for interest-only loans, while many banks are restricting investment interest-only loans to 80% LVR.” Sheehan joined Better Choice in September 2017. At the time she told Australian Broker her goal was to “significantly increase awareness on the wider shopfront of solutions Better Choice can offer brokers who are looking for alternatives to the major banks”.

In line with resulting strategies – and in addition to NationalCorp Home Loans – Better Choice last year consolidated nationally recognised mortgage manager groups Iden Loan Services, Future Financial and Pioneer Mortgage Services under its brand. As a result it now provides prime residential loans to owneroccupiers and investors, in addition to its core specialist product range. AB

HERITAGE BANK APPOINTS CHIEF CUSTOMER OFFICER senior executive Kevin Potter has replaced long-serving head of retail Paul Francis, following his retirement.

Potter moved into the renamed role of chief customer officer in April, after Francis concluded his 28-year career at Heritage. He takes responsibility for the retail function, including the branch network, the mortgage broker distribution team, the contact centre and business banking. “Kevin is passionate about our business and has the drive to make Heritage an even better place for our customers to bank,” said CEO Peter Lock.

HERITAGE BANK

CAUGHT ON CAMERA SMEs often find the shifting economic landscape a challenge in their day-to-day business operations, and many turn to their brokers to provide guidance. Helping brokers keep ahead of the latest trends, OnDeck hosted a live discussion on the SME lending landscape in central Sydney on 17 April.

More than 100 brokers and finance professionals gathered to hear insights from the online lender’s global CEO and founder Noah Breslow, who was joined by Stephen Koukoulas, MD of Market Economics and economic adviser to illion, and Australian sports stars Stephen Hoiles and Steve Roach. Discussion centred on what the future could hold and how brokers could create winning client strategies.

www.brokernews.com.au

25

DATA

VICTORIA

QLD SPOTLIGHT

Demand slows as APRA and banks place increasing pressure on investors The new supply expected to come on to the Victoria property market following the completion of construction projects may be an additional blow to a market that is already starting to struggle.

“Motivated buyers who can still afford to buy in Sydney and Melbourne are now few and far between, and large volumes of new supply keep hitting the market,” says Simon Pressley, managing director of Propertyology. “Investors might be wise to start thinking about whether now is a good time to sell and recycle their profits into other markets.”

With APRA and the banks placing increasing pressure on investors, demand has slowed and it could be a while before the city recovers.

“The reduction in interest-only lending and also the increase in interest rates which is slowing lending, and the high risks to investors, already means that buying power is more limited now,” explains Angie Zigomanis, senior manager of residential property at BIS Oxford Economics.

Area

Type Median value

Quarterly

12-month

growth

growth

Melbourne

H

$735,000

-2.0%

14.1%

Vic country

H

$350,000

2.9%

6.3%

Melbourne

U

$530,500

-0.8%

6.1%

Vic country

U

$270,000

-3.6%

3.8%

NORTHERN TERRITORY

Market still dampening investor prospects, but recovery is expected Darwin looks to be in a position to finally stabilise, even as values continue to drop in the year ahead.

Charles Darwin University is boosting demand in the north, and the south is not slacking either, with the suburb of East Side expected to record aboveaverage price growth, according to NAB Economics’ Residential Property Survey Q4-2017.

Despite the improvement, Darwin could still have a tough couple of years ahead.

“Resource mining … is still falling away, and that’s impacting population growth, vacancy rates, prices,” says Angie Zigomanis, senior manager of residential property at BIS Oxford Economics. “It went through a big burst of new dwelling construction. [That is] coming through, with population growth falling away, so the rental market’s still pretty tough, and falling fairly significantly in Darwin.”

With Darwin largely remaining the home of a transient population driven by the resources sector, it isn’t a place where an investor can play the long game and expect capital gain.

Area

Type Median value

Quarterly

12-month

growth

growth

CHASING THE GOLDEN LIFE A strong economy, new infrastructure projects and demographic changes are driving demand in coastal areas of the Sunshine State Gold Coast and Sunshine Coast are outstripping Brisbane as the markets of choice in Queensland. According to the Real Estate Institute of Queensland (REIQ), the Gold Coast, true to its name, was the top performer in the market at the close of 2017, with an annual median house growth figure of 7.7%, followed by the Sunshine Coast, where median house price growth was 6.4%. The Gold Coast continues to be driven by a strong economy that’s been boosted by the infrastructure projects implemented for the Commonwealth Games.

The rental market has also peaked, with the vacancy rate down to just 1.1%. This, however, is expected to loosen again once developments are completed, particularly now that the Games are finished. The third-highest performer was the suburb of Noosa, recording a 6.2% increase in house prices.

According to REIQ CEO Antonia Mercorella, Noosa is flourishing because it is a low-supply area that’s seeing high demand from owneroccupiers and holidaymakers.

“Noosa’s world-class beaches, stunning natural bushland settings and wonderful warm community are factors that are fanning the flames of buyer demand. It is inevitable that this will push up prices,” Mercorella says. “This is an area that could do with more supply, but clearly the topography makes that challenging.”

With the preference for coastal living, Brisbane’s growth has been mild in comparison.

Prices in the city increased by only 2.6% at the end of December 2017.

“Brisbane’s doing fine; it’s kind of tracking the Australian average,” says REA Group chief economist Nerida Conisbee. “We’re seeing steady increases in demand for apartments. The inner north is doing the best, and the market itself is pretty stable.” AB THE

H

$500,000

0.4%

-3.1%

Median price (houses)

NT country

H

$435,000

0.7%

0.5%

$609,371

Darwin

U

$386,250

1.6%

-12.0%

NT country

U

$290,000

-9.4%

3.9%

www.brokernews.com.au

Lifestyle locations enjoy booming popularity led by downsizing retirees, empty nesters and millennials There has been an increasing trend for people to move to lifestyle locations such as the Gold Coast and Sunshine Coast, fuelled by high property prices in Melbourne and Sydney and the allure of a better lifestyle up north.

In the longer term, I believe the continued demand from younger families will be in large part driven by local job opportunities, which are naturally higher in cities than regional areas.

One interesting aspect Rhain Williams from Morgans Financial in Noosa has noticed is that continued technological advances (especially in relation to connectivity and transport) have led to more executives, IT professionals and fly-in, fly-out workers living in Noosa and the surrounding area, potentially without compromising their employment income.

In the Noosa region, there has been a trend of retirees who have already moved to the area upgrading or downsizing.

Apartments or houses in a certain price bracket are in high demand, which has started to push prices up at this end of the market. The increased demand and growth in Noosa has moved to suburbs slightly further out, such as Tewantin, which are subsequently seeing growth, with some prices rising by around 8%.

Melanie Peter Director, The Peter Group

SUBURB TO WATCH: TUGUN

Darwin

26

BROKER PERSPECTIVE

Median price (units) $464,205

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

5.9%

25.5%

46.0%

4.8%

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

5.2%

23.1%

46.0%

4.8%

AUSTRALIAN CAPITAL TERRITORY

The apartment market is weak, but houses remain strong OPPORTUNITIES AND KEY INFRASTRUCTURE

Gold Coast leads market with annual median house growth of 7.7%

Growth in Brisbane is mild in comparison, at 2.6%

Great Barrier Reef contributes 64,000 jobs and $6.4bn a year to the state’s economy

The state's population was 4.69 million as at December 2013

HIGHEST-YIELD SUBURBS IN QUEENSLAND Suburb

Type

Median price

12-month growth

Gross rental yield

Moura

H

$85,275

-10%

15%

Collinsville

H

$85,000

42%

13%

Dysart

H

$71,000

-5%

12%

Blackwater

H

$90,000

-25%

12%

Cloncurry

H

$140,000

-15%

11%

The government is snapping up detached housing following the Mr Fluffy asbestos incident a few years ago, so houses continue to attract demand.

“Canberra’s apartment market is still fairly weak, but the house market’s stronger. Population growth has picked up; overseas migration’s picked up – it’s probably more students than anything else,” says Angie Zigomanis, senior manager of residential property at BIS Oxford Economics.

Damien Lee, head of acquisitions at Caifu Property, says construction has been underway for mixed-use, gentrification high-density projects.

However, he sees Canberra as a controlled market.

“There’s a good population base there, a good job base, but … it can become oversupplied very quickly,” Lee says. “It’s very controlled, with all the land and development supply there, and it’s who is in power in the government at any one time that has a big influence.”

Area

Type Median value

Quarterly

12-month

growth

growth

Canberra

H

$700,000

3.7%

8.7%

Canberra

U

$434,750

-2.3%

0.0%

www.brokernews.com.au

27

DATA

NEW SOUTH WALES

12-month

growth

growth

Sydney

H

$945,500

-6.5%

7.6%

NSW country

H

$464,725

1.0%

7.0%

Sydney

U

$700,000

-2.4%

3.6%

NSW country

U

$387,500

-0.6%

5.4%

Growing population leads to rising demand, and rentals hit new highs

$1,000,000

Quarterly

12-month

growth

growth

Perth

H

$507,750

-0.4%

-1.9%

WA country

H

$347,000

1.2%

-4.2%

Perth

U

$390,000

-2.5%

-3.6%

WA country

U

$265,000

6.9%

-1.8%

www.brokernews.com.au

Cleared

61

Uncleared

38

Clearance rate

61.6%

PERTH 30

Cleared

8

Uncleared

19 29.6%

Houses

Sydney Melbourne Brisbane Adelaide

Perth

Hobart

$527,500

$425,000

$355,750

$0

$395,000

$100,000

$506,250

$200,000

$312,000

$300,000

$437,000

$500,000 $400,000

$555,000

$600,000

$716,000

$700,000

$690,000

$800,000

$920,000

$900,000

Performance in Perth is bucking the WA average, with rental demand on the up. Perth’s vacancy rate of 5.3% is the lowest it has been since July 2015, according to the Real Estate Institute of WA (REIWA).

“It’s quite remarkable to see it is this low, considering seven months earlier Perth’s vacancy rate soared to 7.3% – the highest we have ever experienced,” says REIWA president Hayden Groves. “REIWA data for February [is] showing stable rent prices and declining listing levels. Leasing activity did drop off in February; however, levels are still healthy and trending above long-term averages.”

This rental activity can be attributed to an influx of residents and the increasingly transient population. “Rental markets always feel the effects of population trends, with new entrants into the state the first to soak up rental stock,” Groves explains. Stock on market has also tapered off, thus demand is able to catch up.

28

114

Clearance rate

MEDIAN HOUSE AND UNIT PRICES

Type Median value

Total auctions

Total auctions

WESTERN AUSTRALIA

Area

ADELAIDE

Darwin

Units

$419,500

Quarterly

$375,000

Type Median value

The number of homes taken to auction across the combined capital cities increased during the last week of April and, with a total of 2,539 auctions held, the higher volumes returned a preliminary clearance rate of 62.5%.

In comparison, the week before there were 1,799 capital city auctions returning a 62.2% final clearance rate.

The combined capital city auction market has seen a relatively steady performance over the year to date, with the average weighted clearance rate continuing to track around the low-to-mid-60% range for most of 2018, despite the level of activity over each week.

$531,000

Area

WEEK ENDING 29 APRIL 2018

$655,000

As investor levels fall, Sydney is seeing a resurgence in the activity of owner-occupiers and first home buyers. “[Figures suggest that] as investor activity is reducing, the slack is being picked up by owneroccupiers,” says Matthew Lewison, director of OpenCorp. “Home buyers [have become] more active in the affordable end of the market, which has reduced the median house price in consecutive months.”

The rental market has stabilised as well, according to the Real Estate Institute of NSW (REINSW). “The vacancy rate … is favouring those seeking rental accommodation,” says Leanne Pilkington, president of REINSW, in the February 2018 REINSW Vacancy Rate Survey.

Vacancy rates fell in middle Sydney and the inner city, while those in the outer ring increased slightly. In the regional markets, they tightened in Wollongong and Orana, but Albury, the Northern Rivers and the South Coast recorded rises.

CAPITAL CITY AUCTION CLEARANCE RATES

$355,000

Owner-occupier and first home buyer activity rises as investment declines

Canberra

CAPITAL CITY HOME VALUE CHANGES Capital city

Weekly change

Monthly change

Year-to-date change

12-month change

Sydney

-0.1%

-0.3%

-2.1%

-3.3%

Melbourne

-0.2%

-0.4%

-0.9%

3.8%

Brisbane

-0.1%

0.0%

-0.1%

0.9%

Adelaide

0.0%

0.1%

-0.3%

0.9%

Perth

0.0%

-0.1%

-0.3%

-2.3%

Combined 5 capitals

-0.1%

-0.3%

-1.2%

-0.4%

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

BRISBANE Total auctions

CANBERRA Total auctions

48

Cleared

28

Uncleared

14

Clearance rate

100

Cleared

41

Uncleared

42

Clearance rate

49.4%

66.7%

SYDNEY Total auctions

588

Cleared

309

Uncleared

177

Clearance rate

63.6%

TASMANIA

MELBOURNE Total auctions

914

Total auctions

5

Cleared

525

Cleared

3

Uncleared

301

Uncleared

1

Clearance rate

Clearance rate

63.6%

TASMANIA

Investor confidence peaks as low supply drives demand from buyers and renters As Hobart racks up accolades in the national property market, it may be looking to claim the top spot among Australia’s capital cities.

“It’s now abundantly clear that Hobart is about to hit the lead. And not by a smidge either; it’s about to fly right past,” says Simon Pressley, managing director of Propertyology. “All of the metrics which shape one’s opinion point towards further growth in Hobart – lots of it! If ever there was a chance of a capital city breaking Darwin’s record as the last Australian capital city to exceed 20% price growth in a calendar year (22% in 2007), it is Hobart, especially in the municipalities of metro Hobart, Clarence and Glenorchy.”

However, “Hobart’s biggest challenge is insufficient stock ... adding even more pressure on prices,” Pressley explains.

Area

75%

Type

Median value

Quarterly growth

12-month growth

Hobart

H

$422,000

2.9%

6.9%

TAS country

H

$285,000

1.8%

5.0%

Hobart

U

$350,000

11.1%

3.3%

TAS country

U

$230,000

-6.1%

4.3%

All data sourced from CoreLogic.com.au

www.brokernews.com.au

29

PEOPLE

Aggregators AFG Connective College Capital

IN THE HOT SEAT Daniel Ferro, sales and partnership manager at Spotcap Australia, supports brokers and accountants in building their businesses. Here, he tells Australian Broker about tax, tapas and the top survival tips for working in finance

What was your first job?

I took my first role in finance about a year after I moved to A Australia. I was offered a position with the Tax Institute to help bring in a new education course for their organisation. Hearing the word ‘tax’, I promptly turned the roll down a number of times before succumbing to the pressures of affording to live in Sydney. However, the funny thing is, it turned out to be one of the best moves I have ever made. I was put in front of directors and partners from some of the largest accounting and finance firms in Australia. This role led me to become the national corporate partnership manager at the Tax Institute, before I moved to Spotcap.

Q

If you had the MFAA’s CEO over for dinner, what would you serve?

I love cooking and, growing up between England and A Spain, I have been lucky enough to be surrounded by great cooks my whole life. So, true to form, I would serve a selection of tapas, chorizo and prawns pilpil, to name a few.

This would be accompanied by good cheese, ham and a quality red wine. Tapas is always a great meal, as everything is shared so it’s less formal and encourages great dinner conversations.

Q

What are your top survival tips for working in finance?

Yes, it’s a buzzword at the moment, but diversification is the way A forward in finance. It’s not just a case of all your eggs in one basket, but a balanced and sensible approach to being able to service all of your clients’ needs. More importantly, it about not turning business away, especially with the end of the financial year around the corner.

Consider addressing your sales cycle. If a residential deal takes, on average, six months to settle, why not consider writing small business loans in the interim? These smart deals are simple, fast and take just a few days to settle, with the commission sitting in your bank by the end of the week. Opportunity dances with those already on the dance floor!

Q

If you won $1m, what would you do with it?

It sounds cliché but I would use the money to get a mortgage.

A I currently can’t afford one due to my cafe habits and excessive consumption of smashed avocado in Sydney. AB

Q

30

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