Australian Broker 15.17

SEPTEMBER 2018 ISSUE 15.17

Raising the bar for SME lending The story behind the new fintech Code of Lending Practice /16

A big deal A former lawyer reflects on her first deal as a broker /20

FRANK PAUL Blue Wealth’s COO and head of research explains why brokers are the missing link when it comes to property investment /14

Cautious positivity Why homeowners in Perth are shifting to affluent suburbs /26

ALSO IN THIS ISSUE‌ Opinion The NSW Fair Trading department takes on trail /22 Forum The latest reactions from brokernews.com.au /24 In the hot seat RateSetter Australia CEO Daniel Foggo on strategy and success /30

NEWS

IN THIS SECTION

Lenders Private lender space consolidating /04

Aggregators Aggregator posts 10.4% profit increase /06

Technology AI-powered tool to transform SME lending /10

Brokers CIF confirms end of volumebased bonuses /12

Market Hobart market forecast to slow down /08

www.brokernews.com.au SEPTEMBER 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

13 SEPTEMBER

17 SEPTEMBER

20 SEPTEMBER

R U OK? Day

Seminar: Buying a first home

As part of its commitment to improving mental health, the FBAA is urging brokers to ask their peers, “Are you OK?” on 13 September. The aim is to encourage people to connect, share stories and support each other to create better recognition and understanding of mental health issues.

Run by Soca Realty in Perth, this seminar for first home buyers and their representatives will cover every aspect of property buying.

On completion, delegates will be clued-up on finding suitable property; the negotiation process; and navigating a sale to ensure they get the best possible deal.

Australian Property Market Update Hosted at the Hilton Adelaide, the Blue Wealth market update will cover the latest from across Australia’s property markets; how to leverage investment knowledge to make sound decisions; and the risk comparison between property and other asset classes. The event is open to brokers and their investor clients.

Production Manager Alicia Chin 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

20 SEPTEMBER

30 SEPTEMBER

Randstad Leaders Lecture: Marnie Baker

Royal commission interim report due

Marnie Baker, MD of Bendigo and Adelaide Bank, will deliver a session titled ‘Balancing the Interests of All Stakeholders: Cultivating Trust in Banking in the Post-trust Era’. Drawing on her own insights and experience, Baker will cover the digital economy, data misuse and strengthening brand outcomes.

Commissioner Hayne is due to deliver his interim report by 30 September following four rounds of public hearings that focused on farming finance, SME and consumer lending, and financial advice. Almost 7,000 submissions have been received, and the final report is due by 1 February 2019.

19 OCTOBER Australian Mortgage Awards The leading independent awards event in the mortgage industry highlights the outstanding achievement of Australia’s top mortgage brokers, lenders, aggregators and advisers. The 2018 AMAs will be hosted by Lawrence Mooney, with entertainment by Furnace and the Fundamentals and Linden Furnell.

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

21 – 23 OCTOBER Customer Owned Banking Convention Themed ‘The Challenge of Change’, this year’s convention will be held in Melbourne and feature former prime minister Julia Gillard, alongside FINSIA CEO Chris Whitehead; Cognitive Finance Group founder Clara Durodié; Michael Edwards, VP for advocacy at the World Council of Credit Unions; and Bank Australia chair Judith Downes.

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26 OCTOBER

16 NOVEMBER

MFAA Golf Day

FBAA 2018 National Industry Conference

Taking place at the Adelaide Hills Mount Osmond Golf Course, the game tees off at 8am and is followed by lunch and prize presentations, including team prizes and competition holes for longest drive and nearest the pin. Fees range from $120 for single members to $720 for a four-person, non-member team.

The FBAA’s annual conference and awards will be held at Sea World on the Gold Coast.

Under the theme ‘Evolution’, the conference will support brokers in navigating recent industry changes, while the evening’s Awards of Supremacy will see 500 guests gather to recognise leading industry personalities.

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.

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NEWS

LENDERS MEMBER-OWNED BANK HIKES RATES

THE LERNER INDEX: MEASURING MARKET POWER Source: Lerner Index, calculated by the Productivity Commission

Rates exceeding zero indicate pricing power. Therefore, major banks are using market power to keep interest rates high on loans and low on deposits

largest memberowned bank, CUA, increased its interest rates by 0.25 percentage points across more than 20 products last month, anticipating high funding costs in the coming year. “The CUA move goes beyond what we have been seeing, and at 0.25% is the sort of increase that could become a way of life when the Reserve Bank eventually starts the upward move in the cash rate,” said Canstar group executive of financial services Steve Mickenbecker.

AUSTRALIA’S

60% Major banks

Other Australian-owned banks

Market power

50%

40%

High-income countries average World average

30%

20%

10%

MARKETPLACE LENDER SETS RECORD is on track to become the first marketplace lender to reach the $500m loan book milestone this month. Established in 2012, the lender provides unsecured personal loans of between $5,000 and $50,000 over terms of two to five years. SocietyOne’s book has grown nearly six times since the start of 2016, and last month the company named Mark Jones as its new CEO, replacing Jason Yetton.

0%

2008

SOCIETYONE

“Banking must be strongly regulated, but excessive regulatory costs harm competition and consumers ultimately pay the price” Mike Lawrence CEO, Customer Owned Banking Association

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2009

2010

2011

2012

2013

2014

PRIVATE LENDER SPACE CONSOLIDATES IN TIGHTENING MARKET “Rapid rate of consolidation” witnessed by non-bank CEO, who predicts that developer finance will continue to face pressure in Brisbane and Perth non-bank private lender says the space is seeing a rapid rate of consolidation following a tightening of the property market over the last year.

Noting the trend, the CEO of non-bank finance group Chifley Securities, Dominic Lambrinos, said, “As the residential market is pulling back, there is increasing evidence of mispricing of loans to developers by new, smaller players. As a result, quality non-bank operators are becoming more sophisticated, which is starting consolidation in the lending marketplace.”

Chifley Securities increased its lending to developers and landowners from $1.45bn to $2bn in the last financial year and has A

reported that its private lenders grew in number by 40% during the year to reach 165.

Looking ahead, Lambrinos expects developers will continue to face pressure as declines in demand continue and presales fail to convert to settlements. Further, he says this activity will be concentrated in “several of the major markets”, specifically Brisbane and Perth.

“As a result of the pullback, it is becoming increasingly evidenced that many loans were mispriced and, as a result, the lending market is becoming more challenging, especially with the tighter lending controls being put in place by APRA and expectations arising from the royal commission,” Lambrinos said.

“We are also seeing an explosion

2015

2016

2017

2018

in the number of private investors entering the market, especially foreign funds, which are demanding greater professionalism of the non-banks and brokers facilitating transactions.”

In the last year, Chifley – which recorded more than $400m worth of loan settlements in its first year in business – launched an aggregation division. Its aim is to provide access to funds for “larger, prominent broking firms finding it more difficult to gain funding from the major lenders for their clients and [that] have limited access to private lenders”.

The Chifley Aggregation Group experienced loan volumes worth $1.2bn during its first financial year and expects strong growth in the division over the next year as the market tightens further.

Lambrinos said, “There are large groups across the property sector now off limits to major lenders, despite the fact that many of the projects are viable and backed by strong equity and balance sheets.”

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NEWS

A G G R E G AT O R S MERGER BENEFITS HIGHLIGHTED proposed merger between Finsure Group and ASX-listed regional bank ADI Goldfields Money Limited (ASX-GMY) will bring “enormous benefits” to the aggregator’s network of brokers and their customers, according to Finsure co-founder and MD John Kolenda. Not only will the merger create Australia’s “first truly scalable digital challenger bank”, but Kolenda says Finsure Group’s broker partners will be able to offer their customers better home loan products and rates as a result.

A

SETTLEMENTS DOWN 7% IN ‘FLAT MARKET’ to the latest financial results from Mortgage Choice, the firm saw net profit after tax increase by an annualised 3.3% to $23.4m in FY2017. The core broking business posted a cash NPAT of $22.75m, up 4% year-on-year, and its loan book at the end of June reached $54.6bn, representing 2.3% growth. However, settlements – which reached $11.5bn – were down 7%. CEO Susan Mitchell said the firm was not currently growing its franchisee numbers.

ACCORDING

AGGREGATOR REPORTS 10.4% PROFIT INCREASE Financial results derived from core residential and commercial aggregation activity as new broker training course announced saw its net profit after tax rise by an annualised 10.4% to $33.3m in FY2017. The growth was attributed to a debt-free balance sheet and the strength of AFG’s distribution capability, with residential settlements of $35.3bn representing growth of 3%.

AFG CEO David Bailey also gave credit for this growth to the company’s diversified earnings through its core residential and commercial aggregation business and higher-margin AFG Home Loans business line.

“The earnings diversification strategy of AFGHL continues to deliver results for shareholders, with settlements of $3.2bn, up 20% on FY2017,” he said.

AFG

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The past year saw the company acquire a significant stake in commercial SME lender Thinktank Group and the continuing rollout of its AFG Business platform.

Amid tighter lending conditions and greater industry scrutiny arising from the royal commission, Bailey said the firm would continue to work closely with government, regulators and industry partners to ensure that momentum-based decisions did not drive unintended negative consequences for Australian borrowers.

“With competition and consumers at the core of our business, AFG will continue to be a first-choice partner for lenders and broking groups. AFG has 50 lenders

on its panel, with more than 40% of residential borrowing going to lenders other than the four major banks, and AFG remains committed to ensuring choice and competition remains for all Australian consumers,” said Bailey.

“The industry will continue to evolve and, as an agile business in the sector with access to broad distribution and funding and building blocks in place, the future will provide opportunities for AFG, and I look forward to another successful year for the company.”

Last month the group also unveiled details of the AFG Academy, a new program for its top-performing brokers. The training involves an intensive three-day course, to be held in Sydney this month and delivered by Professor David Collis of Harvard Business School.

The program follows Harvard’s case study method, which is a hands-on intensive format that enables brokers to apply practical knowledge to their own businesses.

“The aggregator of the future is a true business partner and provides increasingly sophisticated support across critical elements, such as technology enablement” Stephen Moore CEO, Choice Aggregation

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NEWS

MARKET TRUST IN AUSTRALIA’S BANKS DECLINES trust in the banking, finance and insurance sector is at its lowest point in three years after “continuing scandals”.

The Government Institute of Australia’s latest annual Ethics Index shows public perception across all industries has declined six points. Noting the public’s especially “poor perception” of ethics in banking, finance and insurance, the Index reported this category was the lowest of all sectors for the third consecutive year, also scoring a new low of -15.

PUBLIC

VIC TACKLES DODGY DEVELOPERS is aiming to clamp down on “dodgy” property developers through the Sale of Land Amendment Bill 2018 by restricting the use of sunset clauses without the purchaser’s consent in order to protect off-the-plan buyers.

According to the Victorian government, developers can exploit sunset clauses by deliberately delaying completion of a project in order to terminate signed contracts of sale and resell the property at a higher price.

VICTORIA

“Chinese buyers are beginning to anticipate a time, perhaps this year, when investing overseas becomes easier once again” Carrie Law CEO and director, Juwai.com

HOBART MARKET FORECAST TO SLOW AS SUPPLY INCREASES Despite its reputation as the best-performing capital city, evidence suggests Hobart’s housing market is set to weaken has enjoyed a strong run over recent months, but CoreLogic research analyst Cameron Kusher predicts things are about to change.

Data shows Hobart remains the most affordable capital city in the country, with a median dwelling value of $435,833. But in recent analysis Kusher found that the value gap compared to the pricier cities of Melbourne and Sydney has reached its narrowest point since 2013.

“Affordability was a big driver of growing demand for housing in Hobart over recent years. With strong increases in dwelling values, that affordability advantage has now largely been eroded,” said Kusher.

HOBART

He also pointed out that Hobart dwelling values have increased by 32.4% over the three years to July 2018 – which is significantly higher than Melbourne’s 18.7% rise. Citing data from CoreLogic’s Hedonic Index, Kusher said Hobart’s weakness was apparent in its more expensive properties as the top 10% had already recorded a decline of 1.5% from their peak.

Kusher said a significant driver of the growth in dwelling values over recent years had been the distinct lack of supply.

“Although value growth is starting to slow, there remains little stock for sale in Hobart, which should, to some degree, support upwards pressure on

prices. While the total properties listed for sale remains low, advertised supply levels have started to increase over recent weeks and head back towards levels from a year ago,” he said.

“Perhaps this reflects that, as market conditions are starting to slow a little, increasing numbers of buyers are now looking to sell.”

The fact that there has been very little increase in new housing has helped drive up dwelling values over the past few years, but Kusher pointed out that dwelling approvals are starting to trend much higher, indicating an increase in supply.

“Stock for sale is rising, as is the new supply of housing, and signs of market weakness are appearing across the higher-value areas of the city. Given this, we would expect that growth in dwelling values in Hobart is set to be much slower over the coming years than it has been over the past three or so years,” said Kusher.

LENDING SKEWED AWAY FROM BUSINESS TOWARDS HOUSING Source: Productivity Commission

Lending mix across market segments Business

Owner-occupied housing

Investor housing

Share of total lending

70% 60% 50% 40% 30% 20% 10% 0%

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1990

1997

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2017

CHANGING ATTITUDES TOWARDS DEBT Sources: ABS; CommSec

Has debt stopped you from achieving your life goals?

20%

15%

10%

5%

0%

Gen Y

Gen X

Aged 55+

Debt

BABY BOOMERS THINK TWICE ABOUT DEBT younger Australians tend to have higher levels of debt overall, young baby boomers have more financial regrets. A higher share of older Australians see debt as an inhibiting factor in life (see graph above), according to Debt Rescue; and, specifically, when compared with Gen Ys, a higher number of Australians aged 55 years and older believe debt has stopped them from achieving their life goals. Further, the ABS reports that rising property prices, declining interest rates and easier access to consumer credit have seen households grow accustomed to debt.

WHILE

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NEWS

TECHNOLOGY

BLOCKCHAIN LENDING TO BOOST COMPETITION Group has partnered with Lodex to develop a platform to enhance competition among lenders, dubbed BLOCKLOAN. Through the platform, Lodex will be able to connect borrowers directly with lenders, allowing users to leverage their crypto assets. “Blockchain and crypto are triggering a societal and economic shift, and this will only increase,” said BLOCKLOAN co-founder and co-CEO Michael Phillipou. He said it would facilitate a “decentralised, transparent, low-cost way of lending and borrowing through cash and crypto”.

LAKEBA

AI-POWERED TOOL TO TRANSFORM SME LENDING LendingScore dashboard uses artificial intelligence and big data to turn rejections into approvals for SME borrowers is a new way for rejected SME loan applicants to source the capital they need for their businesses, following the launch of a dashboard that transforms undesirable loan candidates into viable applicants.

The LendingScore dashboard uses artificial intelligence and big data to pinpoint how a loan application should be modified to increase the odds of receiving funding.

LendingScore works by reducing risk miscalculations and creating a new market share, addressing the leading reason why SMEs are rejected for loans: application errors or improvable shortcomings on financial profiles.

“Across the UK, US and Australia, more than 50% of SMEs are denied THERE

a loan, and, per lack of industry transparency, never receive feedback about why their request was turned down,” said CEO and co-founder of Lending Express Eden Amirav.

“This means essentially that 20.4 million businesses are inaccurately assessed for funding viability, leaving an enormous amount of potentially viable businesses out in the cold by both traditional and alternative lenders.”

LendingScore comprises four components: the SME personal dashboard; Match Score, to pair borrowers with lenders; a personal step-by-step plan for each SME; and a fundability prediction function.

“With the launch of LendingScore we are leveraging AI-driven tech to turn undesirable loan candidates

into viable applicants, transforming the alternative lending space by decreasing ‘risk misconceptions’ and creating a new market share,” Amirav said.

Since launching in Australia in 2016, Lending Express has facilitated more than $40m in loans.

Its LendingScore dashboard helps rejected applicants source finance by addressing the common reasons for rejection. These often include an incompatible choice of lender; a low credit score; a tender business age; insufficient revenue; existing debt; prohibited industries; and technical application errors such as incorrect details or input errors.

“What is problematic is that businesses don’t know or understand the reasons for being rejected, and therefore don’t know what to fix.

We are using AI to pinpoint trouble areas and personalise the funding process. Each business is judged on individual empirical data, allowing it to address its unique shortcomings to get access to the funding it deserves,” Amirav said.

BLOCKCHAIN IN NUMBERS Source: CFO Innovation/KPMG

Fintech funding H1, 2018 (US$) Asia in focus $16.8bn $2bn

total investment H1 2018 total investment H2 2017

Global comparison $57.9bn total investment H1 2018 $38.1bn total investment in year 2017

Leading countries: India, Australia and Singapore

162 deals regionally

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Average venture capital financing up from $25m to $37.7m

Early-stage deal size up from $5m to $9.2m

875 deals globally

Average venture capital financing up from $14m to $25m

PERSONAL LOAN MARKETPLACE DEBUTS has launched an online personal loan marketplace to help borrowers find out their chance of being approved for a personal loan and the interest rate they are likely to be offered – even before applying. Developed in collaboration with Equifax and participating lenders, the marketplace allows potential borrowers to use a smartphone, tablet or computer to know “in seconds” where they stand with each lender in the online marketplace, without affecting their credit score.

RATECITY

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NEWS

BROKERS

AUSTRALIA CELEBRATES NATIONAL BROKERS DAY third National Finance Brokers Day (NFBD) was celebrated across Australia on 15 August, helping to raise awareness of the advantages of using a finance broker. In Sydney, the day was marked by a seminar hosted by NFBD founder and Suncorp BDM Dino Pacella. Janine Leafe, director of Informed Loans; Siobhan Hayden, HashChing COO; and Yellow Brick Road executive chairman Mark Bouris also spoke at the event. NFBD is celebrated on the third Wednesday of August every year.

THE

CIF CONFIRMS END OF VOLUME-BASED BONUS COMMISSIONS The Combined Industry Forum’s decision addresses concerns that broker incentives encourage customers to borrow more than they need bonus commissions, campaign-based commissions, and other volume-based bonus payments are to be scrapped following recommendations from the Combined Industry Forum.

The decision, published as part of the forum’s interim report, responds directly to concerns that previous incentive structures risked customers being encouraged to borrow more than required.

The move will “substantially reduce incentives for brokers to sell loans from one particular provider”, and all existing agreements will be rewritten by the end of this year.

It responds to concerns raised in ASIC’s Review of Mortgage Broker VOLUME-BASED

BROKERAGE LAUNCHES PATHWAYS PROGRAM Ability Finance Group ASTUTE has established a pathways program for senior high school students who aspire to work in financial services.

Under the program, internships are provided by founder and principal Mhairi MacLeod for students based on the New South Wales Central Coast. “We want to give back to the profession, and providing an avenue for students to gain vital real-life experience in the sector is one way to do that,” she said.

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Remuneration and the Sedgwick Retail Banking Remuneration Review. During the royal commission, volume-based incentives were also highlighted as not meeting community standards or delivering “the best results for customers”.

CIF chair Anthony Waldron said, “The work of the CIF shows how the industry is committed to reform and to raising the bar in support of good customer outcomes. These changes are a positive step towards setting new standards and shaping the future of the broking industry.”

Praising decisive action on a key issue, MFAA CEO Mike Felton said he was pleased with the progress.

“This move gives consumers continued confidence that

recommendations from brokers are not biased towards a particular lender,” he said.

“The abolishment of volumebased bonus commissions by members is a significant milestone for the industry. I look forward to continuing our work with industry and consumer groups as we implement additional reforms in response to ASIC’s report.”

Meanwhile, FBAA executive director Peter White said the change was a “fantastic outcome”.

“Scrapping these bonuses that encouraged a focus on sales is an important step for the industry and demonstrates its commitment to change while also maintaining healthy competition,” he said.

The changes are part of a package of reforms recommended by the CIF at the end of 2017, which include further changes to the standard commission model, a new regime for controlling and disclosing non-monetary benefits, and improved public reporting and disclosure requirements.

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GROWTH IN ACTIVE BROKERS Source: MFAA

MFAA membership numbers, 2002–17 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 2002 2003 2004 2005 2006 2007 2008 2009

2010 2011

2012 2013

2014

2015 2016

2017

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SPECIAL REPORT

REFRAMING THE PROPERTY CONVERSATION Frank Paul, COO and head of research at Blue Wealth, explains why brokers are the missing link when it comes to successful property investment and setting financial goals

KEY BUSINESS METRICS

169

business partners in Blue Wealth’s accredited network

919

booked client meetings in 2017

93%

properties rejected by the research model

91%

of staff are property investors and 56% have more than one investment

19%

of Blue Wealth clients have purchased more than one investment property

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peaks – and their subsequent troughs – are characteristic of property markets around the world, and, despite its steady run of strong performance, Australia is no different. However, in the investment space recent developments have created some less-than-ideal outcomes.

Following recent contractions in credit policy, Reserve Bank figures for June showed a decline in investor loan growth for the first time since February 2009 and, incidentally, for only the fourth time in history. Simultaneously, property values are in decline in major cities as many markets enter a new delivery phase.

But the news doesn’t signal the end for Australia’s investment market – rather, it’s all part of the cycle.

“Clients can be forgiven for panicking because this industry isn’t their day job, but it is the role of the professional to bring some realism to it and take a longer-term view,” says Frank Paul, COO and head of research at Blue Wealth.

“For an experienced broker, even with the recent changes to credit policy, bank lending and APRA, they know that actually it’s all cyclical.”

In short, what goes down must also come back up.

According to Paul, there are three types of investors: the first-timers; those looking to boost an existing portfolio; and rentvestors, who don’t own their own home but want their first property purchase to be an investment.

Highlighting the continued strength of each of these despite PERFORMANCE

recent trends, Paul says, “We cater to all three and the third profile is on the rise.

“The work that we do and ultimately the value we bring to the table is a methodical process that ends up improving the odds of success. There are no guarantees in any investment strategy, but there are ways to improve the odds of success.”

While time and patience are the obvious methods, knowing what to buy – as well as when and why – also plays a significant part.

Maintaining a level-headed

applied, awarding a score out of 10 for growth and cash flow potential.

The Blue Wealth team works strategically with its referral network of business partners – predominantly brokers, as well as financial planners and accountants – to educate new and experienced investors on how to create wealth from property.

This year, the firm has renewed its focus on business development for its partners through training events and the launch of the dedicated Blue Wealth app, now available on iPhone and Android.

The mobile tool allows partners to access investment details, bookmark information, share content, connect with the Blue Wealth team, and book into upcoming seminars.

“I think we have been one of the standout businesses in this space, and we have historically done more training than others. It’s good

“The vast majority of real estate wealth in Australia is created in situations where investors have behaved really well and held for a long period” Frank Paul, COO and head of research, Blue Wealth approach to market cycles, Blue Wealth specialises in the research that underpins informed investment decisions, applying a four-step methodology.

The first step is to leverage historic data to determine the current point in the property cycle and gauge the market potential.

This is followed by macro research on employment growth, population and demographic changes, infrastructure and demand.

Next, micro research focuses on value, transport, quality, design, amenities and rent.

Finally, the Blue Wealth Index is

for our business and it’s good for the referral partner’s business,” Paul says.

Money talks Of late, a huge element of that training has centred on reframing the property conversation. While many are aware that property investment is a long-term game, others require a little more direction as to how it can create wealth and security.

“Investment is a means to an end,” says Paul. “Nobody wants to be a landlord – they buy investment properties to create wealth so that

In partnership with

Frank Paul, COO and head of research, Blue Wealth

sometime in the future they can stop work and have some degree of financial independence.”

From the Blue Wealth perspective, property and retirement are two sides of the same coin, and this means that through in-depth conversations with the client the role of the broker has room in which to evolve and diversify. In turn, this will transform the challenges posed by recent market activity into opportunities and, ultimately, position a broker as the primary finance professional in their client’s life.

Observing a convergence of the roles of broker and financial planner, Paul says expectations

of the traditional mortgage broker are changing.

“A broker may never have sat down with a client to ask them about their future plans, but now those questions are included in the fact-find and that is straight from the financial planner’s playbook,” he explains.

Supporting this diversification, Blue Wealth’s education program includes full-day masterclasses with in-depth conversations about the role of the broker and how to create a functional client relationship, among other topics.

“We are seeing brokers come out of these programs with a new perspective on their client relationships, and also how they

want to help their clients solve some pretty big long-term issues, particularly around creating wealth for retirement,” Paul says.

Long-term thinking There is no shortage of rags-to-riches stories from seemingly ordinary people who leverage their credit score – or the bank of mum and dad – to create extraordinary wealth.

The traditional lifelong savers and investors who have diligently grown a small property portfolio over years don’t make the news cycle like couples in their 20s who reportedly snap up multiple homes while earning average salaries.

Rather than allowing such stories

to skew client expectations, brokers need to channel their clients’ objectives with sound advice. The secret ingredient to turning a profit is time, and lots of it.

“An experienced and educated mortgage broker can do a lot to shape the expectations of a client through good conversations and education,” Paul says. “Investment is a long-term commitment. The vast majority of real estate wealth in Australia is created in situations where investors have behaved really well and held for a long period of time.”

In order to do this, the investor needs to be financially comfortable and buffered against the unexpected.

This allows them to ride through multiple market cycles without being forced to sell – at a loss or reduced profit – when the going gets tough.

“Brokers should facilitate transactions that take into account a client’s borrowing capacity and cash flow capability. They are positioned to facilitate responsible transactions that take into account interest rate rises and so on,” Paul says.

Blue Wealth’s focus for the next 12 months will centre on arming the traditional mortgage broker with the skills required to drive more meaningful and long-term client conversations.

In addition to its new app, the firm will also reveal marketing and lead generation initiatives to support its referral network, and there are targets to increase the number of partner brokers by 100, to reach a total of 250.

“Mortgage brokers who decide to diversify their conversations are viewing their role more as a solution provider rather than a transaction administrator, and that is a mental shift many are making,” Paul says.

“It’s about helping mortgage brokers see how that can work in a positive way rather than them viewing the changes in the market as a compliance burden. More brokers are realising that they need to start thinking that way in order to survive, and survive better.” AB www.brokernews.com.au

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NE WS ANALYSIS

RAISING THE BAR FOR SME LENDING Transparency in business lending has long been an issue for those who own and operate one of Australia’s 2.1 million SMEs. Now six fintechs have come together to back a new code set to tackle the issue head-on. Australian Broker examines the developments those who work in the finance industry, there appears to be no shortage of lenders and loans in the marketplace.

However, for those running Australia’s 2.1 million small and medium-sized enterprises, it can be difficult to see the wood for the trees.

With the intention of addressing this, in July six fintechs signed the Code of Lending Practice, a document designed to bring transparency and clarity to the online balance sheet lending space.

An initiative of the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) and FinTech Australia, key elements include the introduction of a pricing comparison tool allowing customers to compare the cost of unsecured loans from the signatories; an easy-to-understand loan summary; and a glossary of terms written in simple language.

It also acts to unify other directives set out by such bodies as ASIC, ACCC, APRA, the courts, and the new Australian Financial Complaints Authority (AFCA).

The code was signed on 5 July by Capify, GetCapital, Moula, OnDeck, Prospa and Spotcap, all of which helped create it, alongside the Australian Finance Industry Association (AFIA), SME advocate TheBankDoctor.org, FinTech Australia and ASBFEO. The signatories’ deadline for compliance is 31 December 2018.

Speaking to Australian Broker, Ombudsman Kate Carnell said, “Awareness of what is available in the marketplace is really low.

The banks aren’t interested in unsecured loans, so what we have FOR

16

www.brokernews.com.au

is an area where a very large percentage of SMEs are really starved for growth capital. We think it’s really important for SMEs to understand that [other] options exist, but it’s also really important for these small businesses to know

if those obligations aren’t met.

SME advocate Neil Slonim, from TheBankDoctor.org, says the launch of the code is a significant step.

“There are a number of trends in the market currently which make

“Brokers have an absolutely essential role to play in terms of helping small businesses access the most appropriate finance” Ombudsman Kate Carnell what they are getting into.”

In practice, that means the addition of a single page at the front of a loan contract that spells out the exact costs of the loan, the borrower’s and lender’s obligations, and penalties that could be applied

this code relevant and necessary,” he says.

“First there is a lack of appetite on the part of the banks to loan less than $250,000 to businesses without property security, and this has led to a rapid increase in the

number of new players aiming to fill this gap.

“However, there remains a lack of awareness and understanding on the part of SMEs as to how these alternative forms of finance work and how they differ from more traditional forms.”

Creating the code In its wider context, fintech has been identified by the government as a key economic driver with a significant role to play. Addressing attendees at the third Australian Fintech Awards in August, then-Treasurer Scott Morrison said, “What you do, as interesting and fascinating as it is in its micro operations, is far more important to us in terms of how it’s changing the rest of the economy.”

SME lending is only one element of the sector, but it is one that is growing rapidly.

TRANSPARENT LENDING

By increasing transparency, SME borrowers who turn to code-compliant lenders should be able to answer three key questions:

IS THIS THE RIGHT PRODUCT FOR MY NEEDS?

DO I KNOW EXACTLY WHAT IT IS GOING TO COST?

DO I KNOW THAT I CAN’T GET A BETTER DEAL ELSEWHERE?

According to figures quoted by OnDeck, the online small business lending market in Australia is growing at a faster rate than the US market did at a similar stage of development. It is on track to reach values of more than $2bn in annual originations by 2020.

“Online lenders are growing at a significant rate,” says OnDeck Australia CEO Cameron Poolman.

“This is driven by market demand and the credit gap, the result of significant underservicing and issues of trust and agility related to the traditional finance sector.

We launched in 2007 in the US and then in Canada and Australia to solve a major issue facing small businesses: efficient access to capital.”

Further analysis by the lender shows that one in five Australian SMEs have been unable to take on new work because of cash flow restrictions, while nine out of 10 said better cash flow could have improved revenue by an average 11.7%. Worryingly, to solve this issue 66% of surveyed SMEs said they resorted to products like personal credit cards to ease cash flow problems.

“The combination of these issues has played no small part in why fintech continues to grow globally and in Australia,” Poolman says.

OnDeck is no stranger to improving access to capital for SMEs, and previously supported the creation of the Innovative Lending Platform Association, an industry body for online lenders in the US and Canada. Together with other lenders in the association, they created SMART Box, described as a “global best practice

pricing comparison tool”.

Building on this experience, OnDeck Australia responded to a survey of online lenders commissioned by the ASBFEO and conducted in collaboration with TheBankDoctor.org. Following the publication of its results in the February 2018 report Fintech Lending to SMEs – Improving Transparency and Disclosure, OnDeck and other online lenders approached AFIA to express their interest in addressing the issues it raised through a dedicated code.

“Given our history and track record of advocacy in this sector globally, becoming a signatory to the code in Australia was an obvious choice,” Poolman says.

awareness of the code – and adding more signatories – the quality of lending will improve and the reputation of an emerging sector will be preserved.

“The lenders themselves did the work to develop the code, and it’s a testament to their commitment to accountability, transparency and being customer focused,” says FinTech Australia CEO Brad Kitschke.

“Fintechs are solving problems and delivering solutions where the incumbent market has failed. As an industry, we will always prioritise accountability and transparency measures and be customer-centric.

It's why under the lenders code customers are given the ability to

CODE OF LENDING PRACTICE

Signatories and co-creators:

Capify GetCapital Moula OnDeck Prospa Spotcap

Developed in association with:

Australian Finance Industry Association

“There remains a lack of awareness and understanding on the part of SMEs as to how these alternative forms of finance work” Neil Slonim, TheBankDoctor.org A matter of reputation While growth in an area such as fintech is one thing, evolution of a space is quite another. The funding gap left by the banks may have created a headache for business owners, but it has been a gold rush for the online lending space.

However, having a growing number of lenders in any market doesn’t guarantee their quality, and those with predatory interest rates and conditions are able to hide behind the strength and efficiency offered by the fintech sector as a whole. It is hoped that by raising

address concerns to AFCA. We intend on this industry being best practice from the start, being accountable and fair from the ground up.”

Echoing his comments, Beau Bertoli, joint CEO and co-founder of Prospa, says, “We hope the code will help small business owners feel comfortable that online lenders are a genuine alternative to the banks.

“We’re focused on doing the very best we can for our customers. I’m proud Prospa has been able to help create and implement a code of lending practice we believe will set

Australian Small Business and Family Enterprise Ombudsman TheBankDoctor.org FinTech Australia

Deadline for compliance:

31 December 2018

Key elements of code:

Pricing comparison tool Easy-to-understand loan summary

Glossary of terms in simple language

www.brokernews.com.au

17

FE AT URES

Neil Slonim, TheBankDoctor.Org

Kate Carnell, Australian Small Business and Family Enterprise Ombudsman

development,” Slonim explains.

“This work is being undertaken by the six signatories, together with AFIA and FinTech Australia.”

Additionally, a market comparison document covering the

the benchmark for transparency and disclosure in small business lending.”

The code is already inspiring its signatories to go above and beyond their market requirements.

“We will deliver additional standardised pricing metrics to all our customers as part of the lending process,” Bertoli says.

“The key metric of total upfront cost of capital will be augmented by all lenders to include other metrics like factor rates, APRs, simple annual interest rates and so on.”

“The lenders themselves did the work to develop the code, and it’s a testament to their commitment to accountability” Brad Kitschke, CEO, FinTech Australia

The future of SME lending The new code focuses on online balance sheet lending – a small corner of the overall SME and online lending space – but the plans are comprehensive all the same.

“Feedback is being sought from small business owners as to what they want to see in the pricing comparison tool, which is under

funding options available to SMEs is currently in the works and due for release before the end of the year. More signatories will have the opportunity to add their names to the code in due course.

Carnell says, “The important bit is to have a very transparent complaints mechanism, and that hasn’t necessarily been the case.

18

www.brokernews.com.au

In fact it hasn’t been the case.

“So in the next few months our challenge off the back of the code is to work up both the internal and external dispute resolution tools for its enforcement. There is no point

having a code if it isn’t enforced.”

An independent and suitably qualified Code Compliance Committee will be appointed to determine whether a lender is compliant, and it will also be tasked with the responsibility for ensuring ongoing compliance with, and enforcement of, the code.

The code will no doubt boost

business for those who comply, while raising the bar for online balance sheet lending. But that doesn’t mean brokers are out of the loop – in fact they will be relied upon more and more to support their SME clients and help them navigate a burgeoning SME lending sector.

“Small businesses aren’t in a position to navigate all the options out there. I think brokers have an absolutely essential role to play in terms of helping small businesses access the most appropriate finance for their business,” says Carnell.

“Certainly, accountants are important in this space, but for accountants also it’s not their expertise to know all the products or the most appropriate ones, what they really cost and what the traps are for the unwary. I think that is a huge role for brokers going forward.” AB

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19

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

THE SOLUTION

Amy Auden, director at Yarra South Finance, explains how she juggled two lawyers, three properties, one loan, foreign income, a Telstra outage, and a particularly challenging LVR to pull off her first deal as a broker THE FACTS

Loan size and term $5.5m for 30 years (inc. 2 years interest only)

Client Couple with school-aged children

Goal To refinance and purchase holiday house

Location Victoria

20

www.abonline.com.au

Aggregator Connective

approach was not going to work.

I then spoke directly to the BDMs of eight potential lenders. This was time-consuming but necessary, as ideally I wanted to present the clients with more than one option.

This all took place against the backdrop

THE SCENARIO

When you’re a new-to-industry broker, it is daunting going in search of that very first client. After signing up with Connective in February 2018 I started by networking to spread the word about my work and new business.

While networking over lunch, I met my first clients: Australian residents with school-aged children who were looking to buy a holiday home.

They had two homes in Melbourne – one owner-occupied and one investment property – which had equity that could be used for this deal. As the clients worked for an international law firm there was foreign income involved.

They had already seen their ideal holiday home and were considering making an offer of around $1.1m; however, the deal soon became worth much more.

Unlocking the equity in the two Melbourne properties required a refinance, and, after calculating the sum of their existing mortgage debt, my first-ever deal ended up being just over $5.5m.

After our initial meeting, the clients had back-to-back work and travel commitments for a month. Then one Sunday night in late April I received a call saying they had signed a contract of sale and settlement was in 45 days.

I included all the client data in Connective’s Mercury database and generated a list of lender options, but it soon became apparent that there were too many nuances and this

Lender Macquarie

Despite the complications we got the deal over the line with Macquarie within 45 days, yet it was not without additional challenges.

As I was busy collating all the documentation and pushing for the previous year’s tax return, the clients were now being asked for the full 10% deposit. Understandably, they didn’t want to pay this before finance approval, so the payment date for the deposit balance was pushed back by a week.

With that hiccup addressed, it was on to the next. A Telstra outage delayed us sending the loan documentation for signing, which was particularly frustrating given that the couple’s frequent travel demands had already caused issues with signings.

Then the clients’ existing bank – one of the big four – started to pressure the couple to get the loan from them. In the end they couldn’t match what Macquarie was offering, but it did cause a further complication.

Finally, although their final serviceability test score was 1.01, the couple were instructed to cut down on living expenses and were declined for a second credit card, which they did not expect.

THE TAKEWAY

While my former career as a corporate lawyer helped considerably, I cannot

Rules were being followed to the letter, particularly around living expenses, and I faced multiple challenges

Amy Auden Director at Yarra South Finance

of the royal commission, the findings of which were dominating media headlines and causing ripple effects in the lending space. Rules were being followed to the letter, particularly around living expenses, and I faced multiple challenges.

Firstly, the LVR ended up being 77.4% when the banks were demanding 75%, because of the involvement of properties worth more than $2m. Secondly, the clients required interest-only across all loan splits, including their owneroccupied property, and wanted the husband to be named as the borrower and the wife as security guarantor.

Fortunately, the foreign income issue was resolved as the majority of their partnership profits for the preceding tax year had been paid from Australia.

If this hadn’t been the case their lending ability would have been compromised by perceived serviceability.

stress how important it is to have the right mentor. Without the assistance and dedication of Therese O’Neill and her team at Alphabroker Mentoring, I may not have been able to do this deal.

I also cannot stress enough the importance of taking detailed notes – I recorded 170 file notes for this transaction.

The complexities of the deal were such that, if it were ever audited, there would need to be a sound trail of evidence as to what transpired during my numerous interactions with all parties.

I am pleased that I was able to offer a solution to these clients as they have many demands on their time. I had to balance keeping them informed with shielding them from the stress – there is an art to this!

Hopefully, with the first deal providing such a challenge, future transactions will be a breeze… AB

www.abonline.com.au

21

FE AT URES

OPINION

THE THIN END OF THE WEDGE Trail is rarely out of the headlines, but it isn’t just the Productivity Commission causing a stir – in NSW, a government consultation paper has proposed major reforms under the Fair Trading Act. Dallett finance broker David Collett looks at the implications

July, NSW Fair Trading released a consultation paper on trading standards that takes aim at – among other things – trail commissions. While the recommendations extend beyond mortgage broking to cover insurance and IT work, they still raise some serious questions.

NSW Fair Trading plans to eliminate trail commissions without a corresponding increase in upfront commissions. In its own words, it proposes to “amend the Fair Trading Act to prohibit providers of services, products or advice from paying trailer commissions to intermediaries who recommend or refer customers to their business”.

Since when has it been standard practice for an Australian state or federal government to set prices for the private sector, and who will be next?

If accountants fall out of favour, should they too fear an across-the-board pay cut of 40% or more? What about the banks? If the government decides that banks aren’t fashionable any more, will they propose a gross revenue cut for them, too?

The proposal to cut trail commissions naively assumes lenders will pass the full saving through to consumers.

However, to get the desired effect of reducing interest rates by the trail commission amount, the government would need to legislate that change.

That would be akin to setting prices in the private sector. Is this the path we’re going down?

If there’s no guarantee that cutting trail commission to brokers will result in lenders reducing interest rates to consumers by the same amount, why else is the cut being proposed?

There are three reasons, and the logic behind each is equally faulty.

The first concern raised by the department alleges that consumers generally don’t understand how brokers get paid and that trail commission over the life of a product should be disclosed.

However, mortgage brokers already

IN

22

www.brokernews.com.au

the broker’s best interests to stay close to their clients, a more constructive proposal might include a requirement for brokers to offer a free financial health check to existing clients each year, in order to continue receiving trail.

The third concern incorrectly assumes that brokers have little incentive to apply their skills in helping existing customers. Once again, the reality is the complete opposite. Brokers have a direct financial incentive to help their current customers, because it may result in receiving an upfront commission if a different lender has more suitable products. We have all been to professional development days and heard the most successful brokers say that staying close to their existing customer base and providing ongoing value has made a positive difference to their business.

As mortgage brokers, we can feel good about the fact that we arrange more than half of all home loans each year, and that figure is growing. According to the MFAA, more than 90% of customers are happy with their mortgage broker’s performance and more than 70% of mortgage broker business is referred

If there’s no guarantee that cutting trail commission to brokers will result in lenders reducing interest rates to consumers … why else is the cut being proposed?

David Collett Finance broker, Dallett

disclose the upfront and trail commission percentage, and dollar amount, in the credit proposal disclosure document. Furthermore, lenders also disclose the amount they’re going to pay the broker as a percentage and dollar amount in the loan offer documents.

If some consumers aren’t clear about how brokers get paid, adding an extra few words in the above documents to show the total life trail commission amount as well is going to make little difference to whether consumers understand how brokers get paid.

Regarding transparency and fairness, if the trail commission over the life of the product is stated, it should also be done to show the total interest the consumer is going to pay the lender over the life of the product.

The second concern is that not all brokers provide an ongoing service to their clients to justify receiving trail commission. However, because it is in

by existing satisfied clients.

If there is an informed conversation about transparency and incentives, then that conversation goes two ways, and as brokers we can ask some questions too.

To start with, do government ministers have a personal financial incentive for increasing the proportion of Australians who have completely paid off their home by retirement age? If not, why not?

If a lender doesn’t have the marketing budget to compete directly with the big four via advertising or branch access but can afford to remunerate brokers at the same level as the big four, should that freedom be restricted? Similarly, should a small lender that relies on brokers to compete against the big four be able to pay the broker over time?

Australia is one of the last markets in the world to pay trailing commissions to mortgage brokers, but no government should attempt to set prices in the private sector. AB

OPINION

LOOKING AHEAD

James Symond, CEO of Aussie Home Loans, explains why the next financial year will bring great opportunities for brokers

James Symond, CEO, Aussie Home Loans

expect homebuyers will enjoy better buying conditions in the 2018/19 financial year as affordability improves on the back of weaker property prices, especially in the major capitals.

While sluggish wages growth and ever-tightening lending conditions are still cause for concern, the easing or reversal of price growth in some markets will be a welcome change for buyers, especially first-timers.

The Housing Industry Association’s recent report showed easing property prices have improved affordability in five of Australia’s capital cities in the June 2018 quarter, with Hobart, Adelaide and Melbourne the exceptions.

Perth continues to be Australia’s most affordable capital city and represents excellent value for first home buyers and investors. I expect we will see a return to growth in that market very soon as buyers capitalise on its market conditions.

Our recent 25 Years of Housing Trends report showed loan serviceability levels have improved over the last 25 years. Based on a 20% deposit, the proportion of annual household income required to service a mortgage is currently tracking at 36%, up from 27% in 2001 but down from a peak of 51% in June 2008.

This is a good opportunity for mortgage brokers to tell their story, especially following the recent Deloitte Access Economics report showing that brokers make mortgage markets work better, providing information and improving choice and competition for borrowers.

Putting all of these elements together, the next financial year will be a great time for mortgage brokers to improve their dominant share of the lending market.

We continue to help borrowers secure the right loan faster and easier than going it alone, and this is a story that will continue to attract customers to the industry in the future. AB I

www.brokernews.com.au

23

PEOPLE

Get involved in the discussion Share your thoughts at

brokernews.com.au

FROM THE FORUM

Top comments from trending stories on brokernews.com.au

BROKER GROUP RESPONDS TO REGULATORS

POTENTIAL IMPACT OF CCR AN OPPORTUNITY FOR BROKERS

A cohort of industry execs have come together to help mortgage brokers unite through a dedicated forum. The Mortgage Industry Forum (MIF) is backed by 14 founding members – from Yellow Brick Road, Foster Finance, Mortgage Success, Shore Financial, ALIC, Intelligent Finance and Loan Market, among others. Revealing the details during a National Finance Broker Day event in Sydney, YBR executive chairman Mark Bouris said, “This is important. It’s about time we reacted, and there is something happening that I’m involved in, and I would be happy for you to join us.”

Mike Cutter, Equifax group MD for Australia and New Zealand, has said comprehensive credit reporting could lead to risk-based pricing and new lender appetites, which could make manoeuvring around the home loan space a complicated process. Cutter said brokers were best placed to work out which lenders and products were right for their customers, as well as explain exactly how the new CCR process works. He added, “CCR is essentially a more effective decision-making tool. It gives better and deeper insight into the probability of a customer repaying their debt.”

Excellent. Well done, Mark, and everyone else involved.

We need like-minded, experienced brokers to take this bull by the horns. If anyone will work on behalf of brokers it will be you!

Skeptikal on 17/08/18 at 12:12PM

YES, YES, YES, YES... I hope they work closely with the MFAA and give support to the excellent work being done.

We all need to get on board and throw our support behind this initiative!

Here’s the reality of CCR: if you currently never miss a beat on loans, credit cards and personal loans, you can keep the interest rates you have now. However, if you happen to miss a card payment or maybe have insufficient funds in an account to cover a payment once or twice, you’ll be seen as the ‘big risk’ and have to pay higher rates on home loans and other forms of lending.

CCR will only increase rates for some borrowers, with no upside for anyone!

PDoff on 20/08/18 at 09:52AM

Paul Lewis on 17/08/18 at 02:25PM

It would be very good to see John Symond jump into the fray.

He used to take it to the banks in a major way, and if anyone has the most ‘mum and dad’ votes behind him when it comes to the banks, it would be him.

RoJo on 17/08/18 at 03:14PM

I support any group that wants to ensure our profession is protected from all the government agencies and interested parties that want to attack our right to earn a fair income.

However, the [MIF] recommendation that our conversations are recorded and uploaded to an app for all to hear just goes too far. The vast majority of brokers are self-employed individuals; we operate our own businesses and do the right thing. To have this big-brother type mentality where we have to be monitored in this manner is just too much. We have had the term ‘independent’ taken away from us. Having a monitoring system such as this app would just seal that deal, and I for one would not support such an initiative.

The banks promoted this idea to the government twice and got rejected. Years later, the government was made to believe it was their idea, and consequently then made the banks enforce the implementation. Banks were laughing behind the scenes, as they got what they wanted whilst making the government think it was their idea. But the poor old consumer will end up paying a higher interest rate for their mortgage, or be forced to stay with their current bank.

Bottom Line on 20/08/18 at 12:04PM

Not sure where you got that information but you are poorly advised. CCR has been recommended by the Wallis Inquiry, the ALRC review into the Privacy Act, the Murray Inquiry into Financial Services, the Productivity Commission inquiry into data sharing, and on it goes. A CCR credit reporting system is global best practice and it is well past due for Australia to catch up.

Reality Check on 21/08/18 at 06:03 PM

Tim H on 20/08/18 at 10:45AM

24

Great concept. I believe a full website would be even better. I recommend they get all brokers’ names from the aggregators and have all brokers in Australia sign a petition to stop the banning of trail and destruction of our industry.

The cold light of the royal commission showed we are way behind when it comes to the customer-first attitudes of the banking industry in other major economies. This will definitely turn the tables for customers.

Annoyed broker on 20/08/18 at 07:01PM

Time4Change on 24/08/18 at 11:22 AM

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25

DATA

NOTHERN TERRITORY

WA SPOTLIGHT

Price freefall slows but further value declines possible The freefall of prices in Darwin may be slowing down compared to a year ago, but there’s still room for them to fall further.

Malcolm Gunning, president of the Real Estate Institute of Australia, points out that there's been another fall in prices in the year to March 2018, with a decrease of approximately 20%. He attributes the slow demand to the fact that Darwin offers few economic prospects – projects in the pipeline are nearing completion, while there are very few plans for new jobs.

The economy is also hampered by a lack of diversity, and the tourism industry is being limited by location.

“There’s little Asian tourism, because most of the major tourist sites are difficult to get to. They can’t fly in and fly out of places like Kakadu or Litchfield – they’re long day trips, which international tourists are not looking for,” Gunning explains.

Area

Type Median value

Quarterly

12-month

growth

growth

Darwin

H

$505,000

-0.5%

1.0%

NT Country

H

$447,000

6.2%

3.6%

Darwin

U

$339,000

-9.6%

-12.2%

NT Country

U

$354,250

13.2%

4.9%

VICTORIA

As the slowdown catches up with the Vic capital, all indicators are down While Melbourne was able to stave off the decline for longer than Sydney, it seems the slowdown is catching up with the Victorian capital. According to the findings of CoreLogic’s Home Value Index, Melbourne fell behind Sydney in the three months to May 2018, recording a 1.2% drop in prices – the city’s biggest decrease in a quarter since February 2012. Auction clearance rates also fell, along with the number of sales transactions, as more and more supply poured into the market.

“While the last 10 years are not predictive of the future, dwelling values are already falling in Sydney and Melbourne and regional markets are currently outperforming capital cities,” says CoreLogic research analyst Cameron Kusher.

“With housing in a downturn in Sydney and Melbourne and affordability stretched, at this point it seems unlikely the returns of the past decade will be replicated over the next 10 years.”

Nonetheless, the city’s downslide is being tempered by its economic resources.

Area

Type Median value

Quarterly

12-month

growth

growth

CAUTIOUS POSITIVITY

Western Australia’s economic outlook is gaining strength, but the future of the state hangs on its growth potential, diversity and employment outlook

is making moves to pick itself back up following its prolonged stay at the bottom end of the market, but the process will not be easy as investors remain wary.

“While the market may level out in the next six months, it’s much too early for a countercyclical investment in the west – I can’t see prices rising significantly for a number of years,” says Michael Yardney, CEO of Metropole Property Strategists.

“Due to the significant oversupply of new apartments there is little to no prospect of capital growth or rental growth in the Perth apartment market for many years.”

Yardney believes that the future of Western Australia as a whole rests in its economy, which needs to gain considerable momentum in order to attract interest and bring in residents. While approximately 50,000 jobs were created in 2017, buyers are still not confident that Perth is ready to rise again.

“To get people back into the state, more jobs will need to be created … The predominant dependence on the one industry is something that WA is trying to move away from by diversifying economic reliance into other industries. Today, healthcare, construction, retail and education are the industries responsible for the majority of WA’s employment.”

In the next couple of years, however, Perth may turn things around.

“By 2020, the Commonwealth Bank is predicting that the WA economy will expand by 4% based on massive new investment in the resources sector that will be fully underway in two years’ time,” says Shane Kempton, COO of Professionals Real Estate WA and NT. “With a median house price of around $500,000, Perth is now one of the most affordable major capital cities in Australia to buy a home,” he adds. AB PERTH

H

$749,975

2.7%

9.4%

Median price (houses)

VIC Country

H

$360,000

1.4%

7.0%

$664,383

Melbourne

U

$541,000

3.6%

6.3%

VIC Country

U

$269,000

-1.1%

5.0%

www.brokernews.com.au

Positive signs in WA market as demand from first home buyers remains steady and investor interest is renewed Many of our clients are actively looking to upgrade to more affluent suburbs as they feel the market has reached its low point. Over the last 12 months, we have seen the premium markets in Perth show consistent levels of activity.

First home buyers are still very active in Western Australia and we are receiving consistent enquiries from them, especially in the construction space where they receive attractive First Home Owner Grant incentives.

Buyers are considering the low to mid-range price points; however, due to oversupply of these properties and the depressed rental market, there is no real sense of urgency to purchase.

We have recently seen the return of interest from investors who are looking for development sites or quality long-term investment properties. It has been quiet on the investment front for more than 12 months now since APRA’s clampdown on interest-only lending, so this is a very positive sign for the WA market.

Bianca Patterson Director, Calculated Lending

SUBURB TO WATCH: DUNSBOROUGH

Melbourne

26

BROKER PERSPECTIVE

Median price (units) $539,663

Source: CoreLogic

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

-0.7%

6.2%

28.6%

3.5%

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

6.4%

-0.9%

-2.2%

4.0%

AUSTRALIAN CAPITAL TERRITORY

Auction sales strong, rental gains high and rents on the up OPPORTUNITIES AND KEY INFRASTRUCTURE

Tourism focus

New supply

Retail therapy

Economic growth

15 major hotels under development, representing 2,631 rooms

More than 40 large-scale apartment projects planned

Retail centres in the city to receive $4bn in investment

Growth predicted to reach 4% by 2020 according to CBA

HIGHEST-YIELD SUBURBS IN WESTERN AUSTRALIA Suburb

Type

Median price

Quarterly growth

12-month growth

South Hedland

U

$80,000

0%

7%

Kambalda East

H

$60,000

-15%

-9%

Newman

H

$145,000

-6%

-4%

Rangeway

H

$88,500

-1%

-26%

Kambalda West

H

$103,500

-13%

-1%

Canberra is currently one of the country’s stronger markets, particularly in the suburbs of Charnwood, Kambah, Wanniassa and Latham, where houses are selling like hotcakes via auction. Rental gains are high, and rents look to be on the uptick as well. The limited supply ensures that competition is hot.

CoreLogic’s Quarterly Rental Review for June 2018 notes that the heavy regulation of Canberra’s housing stock has contributed to the strengthening of the rental market. Data from Domain indicates that the asking rents for both houses and units have been increasing year-on-year across all ACT regions.

Among the three top-performing suburbs in the ACT over the 10 years to 2018, Mawson’s unit market claimed the top spot – apartment prices recorded an increase of 73.6% in that period. However, the next two runners-up earned their distinction from their house markets, suggesting that the ACT is still mainly a territory for house buyers.

Area

Type Median value

Quarterly

12-month

growth

growth

Canberra

H

$695,000

-0.3%

5.4%

Canberra

U

$439,900

2.2%

0.1%

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DATA

QUEENSLAND

12-month

growth

growth

Brisbane

H

$540,000

1.9%

2.9%

QLD Country

H

$428,000

-2.7%

0.7%

Brisbane

U

$405,000

1.3%

-1.4%

QLD Country

U

$386,000

-1.5%

1.3%

NEW SOUTH WALES

MEDIAN HOUSE AND UNIT PRICES

Sydney remains Australia’s most valuable housing market

$1,000,000

Type Median value

Quarterly

12-month

growth

growth

Sydney

H

$990,000

5.3%

3.1%

NSW Country

H

$472,750

1.7%

5.2%

Sydney

U

$723,000

3.3%

0.8%

NSW Country

U

$385,000

-0.6%

1.6%

28

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Total auctions

67

Cleared

29

Uncleared

20

Clearance rate

59.2%

PERTH Total auctions

29

Cleared

7

Uncleared

9

Clearance rate

43.8%

$1,100,000

Houses

Units

Sydney Melbourne Brisbane Adelaide

Perth

Hobart

$540,000

$446,500

$310,125

$0

$395,000

$100,000

$485,000

$200,000

$310,000

$300,000

$446,000

$500,000 $400,000

$528,000

$700,000 $600,000

$690,000

$800,000

$670,000

$900,000

$840,500

Sydney’s lack of affordability has started to impact the market, as values have been dropping for several months now. However, it is by no means losing shine in the eyes of buyers.

“While Sydney is the most expensive city in Australia, it is also clearly the most valuable and will continue to experience a chronic shortage of homes,” says Metropole Property Strategists CEO Michael Yardney. “Strong economic growth and jobs creation is leading to population growth, and ongoing demand for property in Sydney is well ahead of supply. The rental market is tightening.”

Despite the restrictions placed by banks on overseas investors, which struck a blow to the Sydney buyer market, the capital city retains its international appeal, and buyers are simply being choosier now about the properties they invest in, given the heightened risk.

“Sydney is currently offering investors an opportunity and the prospect of the market moving forward again in 2019,” says Yardney.

Area

ADELAIDE

Darwin

$400,000

Quarterly

$375,000

Type Median value

There were 1,400 homes taken to auction across the combined capital cities this week, returning a preliminary auction clearance rate of 59.1%, while last week 1,324 auctions were held and the final clearance rate came in at 54%. Over the same week last year, auction volumes were higher, with 2,040 homes going under the hammer across the combined capital cities, and the clearance rate was a stronger 67.5%. If we look at results by property type, houses outperformed the unit market this week, with 60% of houses selling at auction, while 57.1% of units sold across the combined capital cities. This is an interesting result considering that so far this year the unit market has consistently been the better performer.

In Melbourne, Australia’s largest auction market, a preliminary auction clearance rate of 61.3% was recorded across 718 auctions, up from 57% across 629 auctions the previous week. One year ago, the clearance rate was a stronger 69.8% across 955 auctions. There were 459 auctions held in Sydney this week, returning a preliminary auction clearance rate of 59.1%, compared to 51.9% across 462 auctions the previous week and 67.6% across 798 auctions a year ago.

$527,500

Area

WEEK ENDING 12 AUGUST 2018

$659,750

One of the few markets with a positive outlook, Brisbane maintains its status as an ideal alternative to its more expensive peers.

“It continues to perform well at a time when many other markets are languishing,” says Michael Yardney, CEO of Metropole Property Strategists.

“This is buoyed by steady population growth driving demand, and underpinned by good economic fundamentals, including job creation and a low unemployment rate.”

Queensland has now become the number one destination for internal migration, taking over from Victoria. Overseas migrants are also starting to opt for Brisbane, with more than 12,000 new residents in the year to June 2018. However, Brisbane isn’t the only local Queensland market with a bright future.

“The most recent population figures confirm that Fraser Coast, Gold Coast, ScenicRim, Cairns, Lockyer Valley and Sunshine Coast all had rates of growth that were higher than or equal to Perth, Adelaide, Darwin and Hobart,” reports Propertyology managing director Simon Pressley.

CAPITAL CITY AUCTION CLEARANCE RATES

$377,500

Regional population growth now competes with major capitals

Canberra

CAPITAL CITY HOME VALUE CHANGES Capital city

Weekly change

Monthly change

Year-to-date change

12-month change

Sydney

-0.1%

-0.5%

-3.4%

-5.6%

Melbourne

-0.3%

-0.9%

-3.1%

-1.1%

Brisbane

0.2%

0.3%

0.5%

1.2%

Adelaide

0.0%

0.1%

0.4%

0.7%

Perth

-0.1%

-0.7%

-1.9%

-2.1%

-0.1%

-0.5%

-2.6%

-2.9%

Combined 5 capitals

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

BRISBANE CANBERRA Total auctions

36

Cleared

17

Uncleared

13

Clearance rate

Total auctions

88

Cleared

31

Uncleared

32

Clearance rate

49.2%

56.7%

SYDNEY Total auctions

459

Cleared

202

Uncleared

140

Clearance rate

59.1%

TASMANIA

MELBOURNE Total auctions

718

Total auctions

3

Cleared

317

Cleared

0

Uncleared

234

Uncleared

1

Clearance rate

Clearance rate

61.3%

TASMANIA

Area

Prices up 12.7% in 12 months to May but rent remains flat Simon Pressley, managing director of Propertyology, says suburbs within Hobart’s inner ring have a genuine chance of producing 20% price growth this calendar year.

“The northwest regional city of Burnie is one to watch. Property sales volumes are already 26% higher than two years ago, and the number of days it takes to sell are falling sharply,” he says. This is supported by construction of a new university, due to commence in early 2019, and record-breaking export volumes out of the Port of Burnie.

CoreLogic notes that Hobart’s potential for capital growth shows no signs of waning as property prices increased by 12.7% in the 12 months to May 2018.

The city also records one of the lowest average weekly rental rates, at $418.

N/A

Type

Median value

Quarterly growth

12-month growth

Hobart

H

$455,500

3.5%

10.4%

TAS Country

H

$290,000

-0.2%

7.3%

Hobart

U

$345,000

4.5%

8.3%

TAS Country

U

$240,000

-0.4%

0.0%

All data sourced from CoreLogic.com.au

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29

PEOPLE

IN THE HOT SEAT RateSetter Australia CEO Daniel Foggo explains the lender’s strategy for building its broker channel, why offering real consumer value is the key to commercial success, and how he would spend $1m

What’s one of your recent career highlights?

It would have to be when Vaughn Richtor joined our board as A chairman last year. This was a highlight for me as it provided a proof point that RateSetter was gaining traction and credibility in Australia. Vaughn founded ING in Australia and grew it to have the fifth-largest loan book, primarily by focusing on building the broker channel. Having him on board provided me with reassurance that we could tackle our next stage of growth, especially the broker channel, with real confidence.

Q

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

It might sound like I’m obsessed with my business, but I’d likely A invest in our lending platform, where returns of over 9% per annum can be earned. I’d likely also want to allocate some to the equity of our business, as I’m confident of the growth we are going to achieve over the coming years, especially as Australia enters the open banking era and we deepen our relationships with brokers.

Q

What was your first job?

I started my career on the FX trading desk at the Bank of New A Zealand, a subsidiary of NAB based in Wellington. I made some good friends and learned a lot working in a trading environment, although I quickly learned I preferred building businesses to trading, and that I like the sun and beaches over wind and rain!

Q

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

I know Mike loves his fishing, so fish would be the dish. Being a A native Kiwi, I’d likely choose New Zealand snapper, with a solid bottle of Kiwi wine (or several) to complement it.

Q

What are your top survival tips for working in finance?

Operating with honesty, integrity and transparency is critical in A finance, for both individuals and businesses. We have the privilege of helping consumers with their finances, which is a significant responsibility. Anything short of the highest standards shouldn’t be tolerated. I’d also suggest that to survive and prosper you must work in a business that offers the consumer real value, which may be an alternative to the status quo. AB

Q

30

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