Australian Broker 15.24

DECEMBER 2018 ISSUE 15.24

New year, new rules John Manciameli examines the Property, Stock and Business Agent Bill /20

A big deal Nicole Cannon of Pink Finance navigates a complicated SMSF purchase /22

Caught on camera MoneyQuest’s national conference heads to the Gold Coast /24

LOOKING AHEAD

After a turbulent 2018, the industry’s leading personalities share their predictions for the coming 12 months /14

ALSO IN THIS ISSUE… Housing market data How mining investment is driving confidence in Perth /26 In the hot seat Nathan Vecchio reflects on his recent FBAA award /30

NEWS

IN THIS SECTION

Lenders Non-majors announce commission changes /04

Aggregators Broker groups speak out against royal commission /06

Technology Online retailer launches home loan products /10

Regulators Financial firms urged to check AFCA membership /12

Market Seasonal lending study reveals SME cash flow trends /08

www.brokernews.com.au DECEMBER 2O18 EDITORIAL Editor Melanie Mingas News Editor Rebecca Pike Production Editor Roslyn Meredith

DATES TO WATCH

Upcoming can’t-miss events

1 JANUARY

3 0 J A N U A R Y

1 FEBRUARY

Commission changes come into effect

Australian Property Market Update

Royal commission final report due

Changes to broker commissions at ING and MyState Bank come into effect today.

The move follows similar announcements

by Westpac, CBA and NAB over recent months. For full details of how each lender will calculate and pay commissions, turn to page 4.

Bluewealth kicks off its 2019 calendar of events with this client update at Sydney Olympic Park. Explaining the firm’s services and the latest investment market trends, this educational seminar covers property investment as a wealth creation tool and provides an overview of Bluewealth’s research methodology.

Following 10 months of hearings that have seen the bank’s top executives answer to Commissioner Hayne, the royal commission’s final report is due to be submitted to the Governor-General by 1 February 2019, outlining its recommendations for the future of banking, finance and superannuation in Australia.

SALES & MARKETING Sales Manager Simon Kerslake Marketing Manager Danica Mendoza

CORPORATE

ART & PRODUCTION

Chief Executive Officer Mike Shipley

Designer Martin Cosme

Chief Operating Officer George Walmsley

Production Manager Alicia Chin Traffic Coordinator Freya Demegilio

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

22 FEBRUARY

26 – 27 FEBRUARY

4 – 5 MARCH

Managing Mental Health in the Workplace

Effectively Managing People and Teams

Responsible Lending and Borrowing Summit

Leaders from all industries and sectors are invited to attend this one-day training course designed to provide the knowledge and skills needed to build confidence when tackling the rising issue of mental health in the workplace. Organised by Informa, it takes place in Melbourne.

This two-day course will be delivered in Brisbane, followed by sessions in Sydney, Perth and Melbourne in March and October.

Delegates will learn about the unique responsibilities of managers and how to set tangible, accountable and manageable expectations for team members.

Informa’s third responsible lending summit will welcome ABA director Christine Cupitt, Ombudsman Philip Field and ANZ customer advocate Jo McKinstray to an open forum reflecting on the lessons learned from the royal commission and exploring opportunities to improve the industry for the future.

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

6 – 7 M A R C H Real Estate Investment Forum Taking place in Melbourne, this biannual event is organised by the Centre for Investor Education. The 2018 edition is set to showcase tried and tested strategies to navigate the opportunities and challenges of domestic and international real estate investment.

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13 – 15 MARCH

5 JUNE

Conference of Major Super Funds

Broker Business Exchange

This two-day event is organised by the Australian Institute of Superannuation Trustees and will be held at the Gold Coast Convention Centre. The agenda will tackle such topics as improving financial inclusion for Indigenous Australians, training in financial literacy, and assisting the financial services sector in enhancing its products.

BBX returns to the Westin Sydney for another day of high-level education, conversation and networking. The day will comprise conference and workshop sessions, which will run alongside an exhibition hall featuring the industry’s leading names, from lenders to business support services.

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 MUTUAL SECTOR PROFITS UP 4.6%

Sep-06 KPMG MUTUALS INDUSTRY REVIEW 2018 Source: KPMG

Australia’s Mutuals Industry Review 2018 (see graphic at right) shows the sector’s overall operating profit before tax grew 4.6% to $634.8m. However, mutual banks’ balance sheets saw much slower growth, increasing by 5.6% to $8.9bn, compared to 7.3% in 2017. Ian Pollari, national head of banking at KPMG Australia, said, “FY2018 saw the mutuals record slower growth compared to previous years in a challenging operating environment for the banking industry as a whole.”

30bps

KPMG

6.6%

Average capital adequacy ratio increased by 30bps to 16.36%

4.6%

5.0%

Operating profit before tax increased by 4.6% to $634.8m

1bp

SETTLEMENT MILESTONE FOR NON-BANK has reached $2bn in settlements since it re-entered the market in 2013, just one year after achieving its first $1bn. CEO Campbell Smyth said, “A number of internal and external factors have enabled Bluestone’s rapid growth. The acquisition by Cerberus Capital Management in April 2018 gave access to new capital, which meant the business was able to broaden its offering and reduce rates, allowing access to a broader consumer market.”

Residential lending increased by 6.6% to $89.5bn

Deposits grew by 5.0% to $91,933.9m

1.9% Net interest margin increased by 1bp to 2.04%

Non-interest income decreased by 1.9% to $555.9m

BLUESTONE

“Without brokers, ME could not fully realise its core purpose of helping Australians get ahead through home ownership” Jamie McPhee CEO, ME

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NON-MAJORS ANNOUNCE COMMISSION CHANGES ING and MyState Bank confirm changes to come into effect from 1 January 2019 in the footsteps of Westpac, CBA and NAB, two non-major banks have announced that they will change how broker commissions are calculated and paid.

On 26 November, MyState Bank confirmed that from January it would begin calculating broker commissions for both new home loans and loan increases based on the drawn-down balance on the 10th calendar day of the month, instead of on the initial total approved loan amount.

With broker originations accounting for more than 50% of its loan book, the bank has said it remains “100% committed to the broker industry”.

MyState Bank’s group executive FOLLOWING

broker distribution, Huw Bough, said, “This is the right thing for brokers, the right thing for aggregators and the right thing for the customer.

“Brokers are critical to the health of the Australian mortgage market.

They provide an invaluable service and guidance to people as they navigate the home loan process.

“At MyState Bank, we will continue to work in partnership with our aggregators, brokers and regulators to ensure we are at the forefront of initiatives that seek to reinforce positive customer outcomes and strengthen the position of the broker channel well into the future.”

The following day, ING announced that its commissions

would be determined on total net loan balances calculated five calendar days after settlement.

Glenn Gibson, ING’s head of third party distribution and direct mortgages, said, “We have two main objectives to achieve here: the first is to clearly deliver on the industry’s reform package, and the second is to keep the commission structure simple.

“To that end we’ve taken a straightforward approach to ensure the change is easy to understand and operationalise for all parties.”

The changes at both ING and MyState Bank will take effect on 1 January 2019. They follow the Combined Industry Forum’s reform package, recommendations from the Sedgwick report, and the ASIC remuneration review.

NAB was the first lender to implement changes, which came into effect last month. Its new rules mean upfront commission is calculated on the amount drawn instead of the total approved facility, and net of any offset facility.

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NEWS

A G G R E G AT O R S MENTOR ACCREDITATION PROGRAM LAUNCHED has introduced a new mentor accreditation program through its L&D platform, Springboard. The step-by-step guide provides “a structured plan and clear obligations for training loan writers”, said national manager for productivity and performance Kristy Bartlett.

“It is now more important than ever to ensure inexperienced brokers are receiving the proper support they need and are working within current and changing legislation,” she adds.

LOAN MARKET

BROKER GROUPS SPEAK OUT AGAINST ROYAL COMMISSION Following statements from AFG, Loan Market, Finsure and others, Connective’s Glenn Lees has called for the industry to stand together CEO Glenn Lees has said the mortgage industry “was not well served” when CBA’s Matt Comyn faced the royal commission during the last round of hearings.

In a letter to brokers, Lees said a “disproportionate amount of time” was spent discussing remuneration, and the greatest concern was a line of questioning that suggested the commission backed flat-fee remuneration.

He said, “Our submission focused on the materially lower proportion of complaints and incidents of misconduct within the mortgage broking industry relative to the entire financial services industry.

“The growth of the mortgage and finance broking industry in recent CONNECTIVE

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years has given rise to greater competition amongst lenders.

There has also been a correlated and strong downward pressure on interest margins across the entire home loan lending market.

“What’s more, broker remuneration has been scrutinised in several reviews over the past two years, with none of these studies finding systemic misconduct and none advocating substantial reform. Notable amongst these is the ASIC report, which relied on the most comprehensive data set ever collected by any party for this purpose.

Lees called for the industry to stand together to ensure there was no uncertainty around the concept of trail commissions.

Lees isn’t alone in his defence of the broker channel. In a statement released last month, AFG’s David Bailey said, “We have seen testimony which has deliberately denigrated the mortgage broking sector, and it is nakedly self-serving. Thousands of small business operators around the country are being bullied by the big end of town.”

He added, “Despite consumers voting with their feet, recent public statements suggest some have seen an opportunity to take back that market share by demonising their biggest competitors who have driven a fairer go into the market.”

Meanwhile, Finsure Group MD John Kolenda said, “Some of the reporting and commentary relating to the mortgage broking sector has been very selective, and there has been no opportunity given to challenge the argument for the betterment of the homebuyer.”

Hearings have now concluded and the commission is due to release its final report by 1 February.

RISE IN SAME-SEX JOINT LOANS from Aussie Home Loans shows 55% of same-sex joint loans in FY18 were taken out by females, up from 50% in FY14.

While joint loans for male applicants are more likely to be used for investments, women are more likely to select a fixed loan. CEO James Symond said, “I expect to see significant growth from these customers thanks to same-sex marriage legalisation and savvy singles looking to get a foot on the property ladder.”

RESEARCH

“Facilitating meaningful conversations with your customer is one of the most important skills brokers should have in their arsenal” Anja Pannek CEO, Plan Australia

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NEWS

MARKET BORROWERS SPLIT ON INTEREST-ONLY LOANS new survey has shown a 50–50 split in opinion on whether interest-only loans are a good or bad thing. According to the customer-owned Gateway Bank, negative sentiment towards interest-only loans has risen 2% year-on-year, echoing trends that suggest mortgage holders are moving away from interest-only to P&I arrangements ahead of the reset of $120bn in interest-only mortgages every year for the next three years. APRA has maintained a 30% cap on interest-only lending.

A

HOMEOWNERS UNPREPARED FOR RATE INCREASES per cent of home loan borrowers have saved less than three months’ mortgage repayments – a 0% increase on 2017. The research, published by Canstar, showed that 6% of borrowers believe prices will crash at some point, up from 4%.

“For brokers it’s an opportunity to say to people: here’s your repayment, it’s a minimum repayment; think about putting a little bit away extra a month,” said Steve Mickenbecker, group executive of financial services.

FORTY-THREE

“Disruptions in lending impact the amount of residential building work. The effect on building activity will become more evident in 2019” Tim Reardon Principal economist, HIA

SEASONAL LENDING STUDY REVEALS SME CASH FLOW TRENDS Research by OnDeck Australia shows that SMEs in retail, hospitality and trades require a funding boost over spring and summer analysis has shown that applications for online SME loans increased by 145% above the monthly average in November, demonstrating strong cyclical funding patterns.

OnDeck calculated the figure based on monthly data to help them understand how funding requests from small businesses fluctuated throughout the year.

The trend was particularly noticeable for service industries such as accommodation and food services, which showed an increase in applications of 190% in November when compared to average monthly demand in 2017.

The data showed the sectors that needed additional funding at this time of year were retail spaces, cafes NEW

and restaurants, and tradespeople.

The data also found that some lending patterns in other small business sectors were more evenly distributed around the year.

Challenging the festive season and EOFY trend, retail trade and wholesale trade lending remained more constant throughout the year, despite the obvious spike in consumer demand for retail products around festive periods.

Michael Burke, head of sales at OnDeck Australia, said brokers could draw two key takeaways from the data.

“First, our data confirms that many small businesses have increased demand during November and December,” he explained to Australian Broker. “This means

they need to be able to access capital to purchase stock, hire staff, promote the business, expand premises and meet other, seasonally driven funding needs.

“Second, the flip side of the coin is that they know their customers will have a slower period around the corner in January, so they need to ensure their cash flow is stable to support the business through that down period.

“Brokers have a role to play in this scenario as trusted advisers to small business owners, helping them to take advantage of the growth opportunities during the high-demand periods and ensuring they are well prepared for the quieter periods.

“From OnDeck’s perspective, our aim is to build awareness of these issues with brokers,” Burke added.

“We’d like to see them proactively reaching out to customers and communicating with them on this topic and helping them recognise and understand the implications the peak period has for their business.”

HOUSE SALE PRICES COMPARED TO LIST PRICES Source: CoreLogic

Combined capital cities 100%

At list price

90%

Below list price

Above list price

80% 70% 60% 50% 40% 30% 20% 10% 0% Oct-06

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Oct-08

Oct-10

Oct-12

Oct-14

Oct-16

Oct-18

TECHNOLOGY UPDATE

SATISFACTION WITH BIG FOUR VS OTHER BANKS Source: Roy Morgan

January–October 2018 6 months to January 2018 (prior to royal commision) 6 months to September 2018

CONNECTIVE CALLS FOR LENDERS TO IMPLEMENT APPLYONLINE VARIATIONS

6 months to October 2018

( ) = % point change from 6 months to January 2018 (prior to royal commission)

100%

90% Glenn Lees

78.0%

78.5%

(-3.2%)

81.2%

83.9%

75.0%

% very or fairly satisfied

70%

75.6%

79.2%

(-4.2%)

84.2%

80%

84.9%

(-1.0%)

60%

50%

40%

30%

20%

10%

0% Big four banks Other banks

Total banks

NEW LOW FOR CUSTOMER SATISFACTION study has confirmed the decline in customer satisfaction with the banking sector. In the six months to October 2018, satisfaction with the banks dropped again, revealing the lowest levels in seven years, according to research by Roy Morgan (see graph above). Bank satisfaction is at 78%, down from 78.5% in September. In the six months prior to January 2018, before the start of the royal commission, satisfaction was at 81.2%.

ANOTHER

benefits of online variations are irrefutable as the growing number of lenders enabling variations in the ApplyOnline platform attest.

Connective CEO Glenn Lees sums it up: “Variations are disproportionately difficult for the percentage they represent in a broker’s workload, because when a lender’s system isn’t geared to handle variations efficiently it can be very complicated. Many lenders treat a variation as a new loan, so from a process perspective it becomes very cumbersome for what in customers’ eyes is a small thing.

“That’s where NextGen.Net comes in. They have a mechanism – ApplyOnline Variations – which deals with variations effectively and efficiently. The added bonus is that it incorporates a ‘compliance tab’ that ensures responsible lending requirements and eliminates the additional overheads that are synonymous with the changing compliance environment.”

ApplyOnline Variations replicates the process for new loans; it also enables lenders to capitalise on ApplyOnline compliance capabilities. The compliance tab leverages a dynamic rule base, supplying requirements and objectives questions for brokers to pose to borrowers for variations. This ensures the same level of due diligence for loan variations as is applied for new-to-bank customers.

“It’s vitally important that the industry starts a serious and prioritised conversation around the need to put structure around how brokers can manage variations for customers on an ongoing basis,” declares NextGen.Net Sales Director Tony Carn.

“Heads of broker groups are invested in this too. It’s in the best interest of customers, brokers and lenders to have a robust process and infrastructure around enabling brokers to efficiently look after their customers.

“Having an industry-wide process around how variations are handled in a standardised fashion also encompasses compliance requirements. The compliance tab is a fundamental aspect of an application for a new customer.

It also needs to be a fundamental component in an application to vary a loan for existing customers,” says Carn.

Lees affirms: “Compliance is nonnegotiable. So the fact it can be done THE

Tony Carn

simply and efficiently is a plus for everyone. Ultimately it feeds into the cost of the whole lending system. The more we can uncomplicate things the cheaper rates will be.”

Standardising variations in ApplyOnline means brokers are familiar with the process for submitting variation applications regardless of the lender.

Besides ensuring borrower requirements and objectives are clearly understood, empowering brokers to manage variations through ApplyOnline puts the customer first and gives the lender a greater advantage of improving loan retention rates.

“If the standardised variations solution in ApplyOnline was across all lenders it would benefit customers, lenders and brokers,” says Lees.

“People will always do what’s easiest.

If lenders make it easier for a customer to stay than go, and efficient for a broker to choose you over someone else, that’s a massive plus for them, and in the end everyone wins.

“So ApplyOnline Variations has a material effect on retention and therefore run-off rates for lenders.”

Tools provided by lenders for variations can have a direct impact on run-off rates, as some existing variation processes work against customer retention.

“Brokers know their customers and are the best-in-class at looking after their ongoing needs. By making the variations process simple for brokers to assist existing customers, the lender is also addressing customer retention and the maintenance of above systems book growth,” says Carn.

The bottom line, says Lees, is the consumer.

“The starting point with any conversation about broking is what it means to the consumer,” he says.

“Prior to the launch of ApplyOnline Variations, a variation generally entailed brokers jumping through a whole lot of unnecessary hoops and contending with consumer frustration.

“The variations service in ApplyOnline introduces a standardised tool for a broker to process an application for a variation, which makes it simple and efficient. If all lenders were to adopt it, the process would be smoother for everyone involved.”

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NEWS

TECHNOLOGY

ASSET FINANCE TOOL DEBUTS company Lakeba, which built the ezidox document collection platform, has launched a new tool to support auto-finance applications. Verimoto is a digital tool that takes and submits pictures and documentation to reduce the process of acquiring vehicle finance from several days to “15 minutes”. Connected with third parties such as Equifax, Verimoto can verify the seller’s identity with a photo of their licence and a biometric video of their face, using ezidox at the back end.

TECH

ONLINE RETAILER LAUNCHES HOME LOAN PRODUCTS Funded by Adelaide Bank and Pepper Group, Kogan.com’s white label loans start from 3.69% pa for owner-occupiers

retail group Kogan.com, which made its name selling everything from technology and homewares to holidays and insurance, has launched a new line in home loans.

Kogan Money Home Loans are aimed towards a range of borrowers, including first home buyers, refinancers and investors. Kogan also caters for self-employed borrowers and offers specialist loans for those with credit issues or debt consolidation requirements.

Rates for owner-occupiers start from 3.69% per annum; the comparison rate is 3.70% per annum or 3.83% per annum with 100% offset. Investor rates start from 3.89% per annum; the comparison rate is 3.90% per ONLINE

annum or 4.03% per annum with 100% offset.

Kogan lists other benefits as fixed and variable home loans with the option of 100% offset accounts.

The retailer says it provides a loan calculator to help borrowers get a quicker understanding of how much they can borrow, as well as lending specialists who will call borrowers back “within a few business hours”.

The Essential Home Loans range, funded by Adelaide Bank, boasts free online redraw; no monthly or ongoing fees on the home loan and $10 per month for the 100% offset account; unlimited extra repayments (up to $20,000 per annum on fixed); interest-only options, and weekly, fortnightly or monthly repayments (for P&I loans).

The Options Home Loans range, funded by Pepper, helps those with unique circumstances; for example, they may have a nonstandard income, previous financial setbacks or be self-employed.

David Shafer, executive director of Kogan.com, said, “Kogan.com delivers products and services that Australians need at some of the most affordable prices in the market, and we’re proud to extend our offerings to the financial services Australians use every day through the launch of Kogan Money Home Loans.

“Digital efficiency continues to be a key driver of our ability to achieve price leadership, and we’ve taken this approach with our Kogan Money Home Loans offering.

“Knowing where to start when getting a home loan can be difficult, especially in a crowded market.

A large part of Kogan Money Home Loans’ mission is to provide solutions to help people lower the cost of owning homes and investment properties and to achieve property ownership.”

FINTECH STRATEGY OBJECTIVES OF MUTUAL BANKS Source: KPMG’s Mutual Industry Review 2018

% ranked highest importance

% ranked second highest importance

75%

Enhance customer experience 48%

Transform current capabilities 31%

Deliver cost-efficiencies 22%

Protect core business against threats

23%

Expand into new lines of business Develop new quantitative investment strategies based on AI

1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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FINTECH REDUCES INTEREST RATES has announced rate cuts across its investor home loans, including a 32 basis point reduction to its variable interestonly product. It says the decision comes at a time of falling investor lending, with the fintech reporting a 33% drop in investment lending in the quarter to November.

“We hope our market-leading investment home loan rates will offer some security to investors looking for competitive finance,” said Tic:Toc CEO Anthony Baum.

TIC:TOC

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NEWS

R E G U L AT O R S

BANK PROSECUTION FUNDING BOOST additional $51.5m has been provided to the Commonwealth Director of Public Prosecutions (CDPP) and the Federal Court of Australia to hire more judges and prosecutors and fund additional resources. The CDPP will receive $41.6m over eight years, and $9.9m will be provided to the Federal Court of Australia over four years.

The government has also asked the Attorney-General’s department to review whether the Federal Court’s jurisdiction should be expanded to include corporate crime.

AN

FINANCIAL FIRMS URGED TO CHECK AFCA MEMBERSHIP As many as 231 financial firms have been named and shamed for missing September membership deadline

Australian Financial Complaints Authority (AFCA) has urged 231 financial firms that it has named and shamed in an online list to check their membership status for the new complaints authority.

AFCA confirmed the figure as of 1 December – one month after it started taking complaints and more than two months after the highly publicised membership deadline of 21 September.

AFCA has been liaising with ASIC regarding the issue, and has said “appropriate action” will be taken against all companies that breach their legal obligations.

It is asking organisations that were previously members of the Credit and Investments THE

ROYAL COMMISSION CONCLUDES royal commission concluded THE on 30 November after seven rounds of public hearings. C-suite leaders from the big four banks returned to the commission for the final round of hearings, during which broker commissions were again under the spotlight. In her closing address, Rowena Orr said, “Our focus was not on identifying further instances of misconduct but on understanding why misconduct occurred and what can be done to prevent it in future.”

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Ombudsman and have not taken out AFCA membership to check whether they are on the published list.

They will then need to immediately take out or finalise their AFCA membership application if they are required to be a member, or to contact ASIC to cancel their licence if they are no longer operating.

AFCA CEO and chief ombudsman David Locke said, “Despite several communications, these firms have not yet joined AFCA. Please be aware that if you are not now a member of AFCA, and you are in fact obliged to be a member, you are likely to be in breach of your legal obligations.”

ASIC can suspend or cancel the

licence of any AFSL or ACL holder if they have not obtained membership.

It is not able to deal with complaints from consumers and small businesses about a financial firm if the firm is not a current AFCA member.

More than 36,000 organisations have already completed the transfer to become members of AFCA. Locke added, “AFCA is the new one-stop shop for external dispute resolution of financial complaints, and membership of AFCA is central to ensuring there is public trust in the financial services industry.

“To protect this trust, it is critical that you ensure your organisation is an AFCA member if it needs to be, and that consumers and small businesses are able to make a complaint about your organisation.”

The full list of companies can be accessed through the AFCA website at afca.org.au.

ROYAL COMMISSION IN NUMBERS Submissions 10,140 of submissions received by the commission 61% of submissions related to banking 12% of submissions related to superannuation 9% of submissions related to financial advice

Revelations 54,000 breaches of money laundering and terrorism financing laws at CBA BBWS (bank bill swap rate) was rigged by Westpac, ANZ and NAB

2,300 NAB loans investigated following ‘introducer’ revelations

Findings 28 September Interim report published

1 February 2019 Final report due

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FE AT URES

SPECIAL REPORT

THE YEAR THAT WAS A royal commission, a slowdown in the housing market and a remuneration witch-hunt – it’s fair to say 2018 brought some challenges. With the year ahead set to be just as turbulent, Australian Broker looks at what 2019 could bring

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2018 IN REVIEW Rise of non-bank and alt lenders Non-bank lending reached an 11-year high in September 2018, and the share of broker-originated loans with non-majors and their affiliates increased by almost 3% in the January to March quarter.

Capitalising on the trend, private equity firms from across the world are already getting a foot in the door: KKR has taken over Pepper Money; Blackstone became a majority stakeholder in La Trobe Financial; and Cerberus Capital Management has acquired Bluestone.

Royden D’Vaz, head of sales and marketing at Bluestone APAC, says, “This acquisition enabled us to pursue aggressive growth targets via mass rate cuts and strategic growth across all our teams.

“Coupled with external market conditions, which currently favour non-banks, in 2018 we saw the value of our applications increase by 54%, with total settlements value increasing by 51%, representing a 39% increase in our number of completed settlements.”

Meanwhile, in the last financial year Liberty saw its total assets rise to more than $10bn, a 35% increase year-on-year.

According to group sales manager John Mohnacheff, the trend is attributable to changing lending conditions at the mainstream banks and customers demanding more choice. The broker channel has undoubtedly enabled both factors, as

well as supporting the rising number of borrowers in self-employed, contract and gig economy jobs who require specialist advice.

“The role of non-banks has always been to drive competition and provide more consumer choice, so lenders like Liberty have naturally increased in relevance,” Mohnacheff says, predicting the growth will continue well into 2019 and beyond.

Another factor is the emergence of the next generation of borrowers.

that the non-bank sector comes out of the shadows, and that can only be a good thing for competition, as well as brokers and their customers,” says Pepper Money CEO for Australia Mario Rehayem.

The downside for 2019 will be tightening lending conditions and softening house prices, but that doesn’t mean credit will dry up.

“I believe that there are still ample opportunities for customers to succeed in getting the loan they deserve, and

“We are very optimistic about where the market is going to go over the next 12 months to two years” Michael Burke, head of sales, OnDeck Australia “This provides great opportunity for both non-banks and brokers.

Non-banks have a real advantage with younger customers because we are able to drive technological change faster. We are constantly developing new tools, such as Liberty IQ, to allow brokers to provide a distinguished service to customers,” he says.

For the seventh consecutive year, Pepper Money has recorded doubledigit, year-on-year growth across its home, car and personal loans, and in 2018 it is on track to eclipse $6.5bn in settlements, up from $4bn in 2017.

“I predict 2019 will be the year

that’s where a mortgage broker comes in,” Rehayem says.

“A good broker should keep abreast of what’s happening and ensure they remain focused on the most valuable asset they have, the customer.”

D’Vaz adds, “The role of brokers will continue to grow in importance as investors and homeowners alike navigate a more complex market created by falling property values and tighter lending conditions.”

SME lending According to Scottish Pacific, more businesses are in growth mode than

NON-BANK LENDING HITS 11-YEAR HIGH Source: CommSec

Loans and advances, annual % change 30%

Banks

25%

Other lenders

20% 15%

11-year high

10% 5% 0% -5% -10% -15% Jan 2008

Jan 2011

Jan 2014

MOST READ ONLINE IN 2018

KOGAN LAUNCHES HOME LOAN OFFERING nline retail group O Kogan.com launched its home loan offering in November, with rates for owner-occupiers starting at 3.69% per annum.

NEW BANK LAUNCHED IN SYDNEY ntrepreneur Anthony E Thomson, who founded two digital banks in the UK, announced the launch of 86 400 in June.

MORTGAGE BROKERS BANNED FOR LOAN FRAUD iaoyi (Jeff) Zhao, Jun X (Leo) Ma and Liang (Victor) Zhang were found to be knowingly or recklessly involved in providing false documents to Westpac in April.

MAJOR LENDER BREACHES RESPONSIBLE LENDING LAWS Westpac admitted to breaching responsible lending obligations when providing home loans and agreed to submit to a $35m civil penalty to resolve Federal Court proceedings.

DEPOSIT GUARANTEE COMPANY COLLAPSES eposit Power went D into administration in March following the placement of Aucklandbased CBL Insurance into interim liquidation.

Jan 2017

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FE AT URES

holistic approach to servicing more of their customers’ needs are not just growing their business but also creating a more sustainable one, better protected from legislative and market changes.”

Royden D’Vaz, head of sales and marketing, Bluestone APAC

at any time since March 2016, and as many as 51% of more than 1,200 surveyed SMEs around Australia are expecting revenue growth in the next six months. However, for 79% of these SMEs, cash flow issues are causing sleepless nights.

“What we see is a growing SME prosperity gap, with those who are performing poorly now in significantly worse shape than four years ago,” says Wayne Smith, head of debtor finance at Scottish Pacific.

“This is where brokers can play a key role, in educating themselves and putting a wide range of funding options in front of their clients.”

Helping brokers with that education is a new generation of Australian fintech SME lenders who in 2018 signed the Code of Lending Practice (CoLP), a document designed to bring transparency and clarity to the online balance sheet lending space.

As a signatory and architect of the code, OnDeck has conducted extensive research into the space, which has shown that approximately 70% of Australian small business owners access capital via brokers or intermediaries.

Michael Burke, head of sales at OnDeck Australia, says, “We are very passionate that brokers play a very valued and important part in helping SMEs be successful, and we want to make sure they are supported with competitive and compelling funding alternatives.”

OnDeck Australia saw a 346% increase in the broker channel and more than 100% growth in total originations in 2018. Burke says the lender and its US parent company have funded over $10bn in loans for 100,000 SMEs in the last decade.

“As people continue to see the 16

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changes and challenges on the back of the royal commission, alternative finance has continued to grow. As we see more challenges through the traditional lines of finance, we think that is going to continue to provide the alternative finance space with another growth opportunity as we go into 2019,” he says.

Prospa, the code’s co-signatory, saw a 70% increase in loan originations in the last financial year. GM of sales and business development Matt Bauld says, “Awareness and consideration of online small business lenders is higher than ever. With enhanced government support for small business and a focus on improving access to finance, we only expect this trend to continue.”

Initiatives like the $2bn Australian Business Securitisation Fund will lower the cost of capital for alternative lenders and, according to Bauld, provide even more affordable options.

“It’s definitely an exciting time, with significant opportunities for the intermediary market,” he says.

“The brokers who embrace a

Diversification Reporting “strong growth” in its commercial and SMSF portfolios over the last year, Liberty has long been an advocate of diversification, urging brokers to learn about everything from personal loans and auto finance to tax debt consolidation.

“The key to successful diversification is early engagement with a BDM. Pick up the phone or attend a PD day and start the conversation,” says Liberty’s John Mohnacheff.

“The other thing brokers can do is stop thinking that diversification is complex or complicated. Although experience always helps, the fundamentals are similar, and it’s easier than what many may think.

If you take the time to understand the customer’s needs and financial position, then all the broker has to do is work with various products and lenders to find even better solutions.”

Bluestone’s Royden D’Vaz echoes the message: “Current market volatility means brokers should reflect on the steps they can take to protect their profits,” he says. “Diversifying into new market segments and product offerings can help offset unstable growth in vanilla lending.”

The investor market A shift in lender appetite, coupled with a decline in property values, saw caution spread throughout the investor market in 2018. In September, ABS figures confirmed the monthly value of new investor

housing commitments had fallen to its lowest level since July 2013.

The same month, housing finance commitments to investors were down by 33.8% on their April 2015 peak.

Further, over the near-30 months that the cash rate has been on hold, investor mortgage rates have increased by as much as 50 basis points.

“Don’t panic,” says Tony Hayek, CEO and founder of Bluewealth.

“Never have clients needed their brokers to be as clear, insightful, educated and calm as they do now.

The broker is obligated to bring reason to their clients’ lives, and it’s difficult for them to do that when they are living under a cloud of uncertainty.”

While Hayek says the current conditions are likely to continue throughout 2019, recovery will begin once the dust has settled from the royal commission and general election.

“The potential introduction of Labor and their changes to negative gearing and capital gains tax will have people behaving cautiously for most of next year,” he says.

However, that doesn’t mean 2019 will be a lost year for investors.

According to Hayek, there is plenty of opportunity around.

“The irony of course is that an environment like this is when the best investment opportunities actually appear. As Warren Buffet said, be courageous when others are fearful and be fearful when others are courageous,” Hayek says.

Regulation and compliance The last year saw several major compliance developments, including the Productivity Commission’s draft report and the royal commission’s interim findings. The Combined

BROKER MARKET SHARE 2013–18 Source: MFAA, based on data from 13 aggregators

55% 50% 45% 40% 35%

50.0%

51.9%

53.7%

53.6%

Jan–Mar 2015

Jan–Mar 2016

Jan–Mar 2017

55.3%

44.2%

30% 25% 20% Jan–Mar 2013

Jan–Mar 2014

Jan–Mar 2018

Industry Forum also continued to raise the bar in the broking industry.

FAST CEO Brendan Wright says, “We believe brokers play an essential role, but we recognise that customer expectations continually shift. This means we need to continue to always adapt to be effective in everything we do: our business processes, documentation and client interactions, data collection and, most importantly, customer service.

“In our view, aggregators will play an essential role in shaping the broking industry of the future,” he adds.

Further, Wright says brokers need to demonstrate that they have met NCCP compliance obligations and ensure they are providing detailed documentation around income and expenses.

“This ‘know and show’ approach means brokers need to ask those extra questions, record all conversations in their CRM, and have clients sign off on their details. Storage of the customer’s supporting documentation in a robust platform is also critical,” he explains.

lift. All in all, conditions should offer plenty of opportunity,” Vala adds.

La Trobe Financial’s chief lending officer, Cory Bannister, reports heightened activity in the sale of industrial properties and office space in 2018. Looking to 2019, he anticipates a continued increase in commercial property purchases as investors chase the “super yields” that can be achieved as the residential market cools.

“We are receiving strong demand as borrowers look to exit lenders with ongoing performance hurdles, in order to achieve certainty to their funding future. We have recently reduced our interest rates on this product in recognition of its strong performance and therefore expect to see a significant uplift in activity in the coming 12 months.”

Broker market share hits new high According to the MFAA, in the 12 months to end March 2018, brokers settled $199.57bn in home loans, the highest volume ever. The aggregate

Tony Hayek, CEO and founder, Bluewealth

NUMBER OF BROKERS WRITING COMMERCIAL LENDING Source: CoreLogic

“Never have clients needed their brokers to be as clear, insightful, educated and calm as they do now”

Apr–Sept 2015

1,673

Oct 2015–Mar 2016

1,641

Tony Hayek, CEO and founder, Bluewealth Commercial lending Data from CoreLogic demonstrates that the number of residential mortgage brokers who also offer commercial finance products more than doubled in the last two years (see graph at right). Further, the value of commercial loan settlements increased to just under $9bn for October 2017 to March 2018.

In the September 2017 quarter, a mere 17% of all commercial loans were written by a broker.

Looking ahead, Thinktank’s head of sales and distribution, Peter Vala, says, “The investment outlook will maintain the already-sound momentum in commercial property for the next year or two at least.”

However, not everything is certain, with finance supply likely to be squeezed over the mid-term.

“We are expecting the banks to remain on a conservative footing, non-banks to step further into the space, and broker penetration in the commercial market to continue to

value of brokers’ home loan portfolios exceeded $640bn.

“With broker market penetration now at more than 55%, consumers and lenders are clearly indicating a high level of comfort with the broking model,” says AFG CEO David Bailey.

However, not everybody has been as confident. While the reputational damage caused by the royal commission continues to echo through the mainstream media, brokers are actively defending themselves through their own channels.

From the MFAA’s multimilliondollar ‘Your broker behind you’ campaign to the launch of the Mortgage Industry Forum and Loan Market’s social media drive to explain why brokers matter, it’s been all hands on deck.

“There is no doubt our reputation as an industry has been challenged, but we have a wonderful story to tell.

Brokers drive competition, value and choice for all Australians,” says MFAA CEO Mike Felton.

Apr–Sept 2016

2,374

Oct 2016–Mar 2017

2,647

2,932

Apr–Sept 2017

3,668

Oct 2017–Mar 2018

0

1,000

2,000

3,000

4,000

www.brokernews.com.au

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FE AT URES

LOOKING AHEAD The royal commission The circus truly came to town in February when the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry commenced.

Charging fees to dead clients was the least of the banks’ problems, once Commissioner Hayne and Rowena Orr QC got stuck in. The fallout was equally jaw-dropping as top executives quietly left their roles and the public’s attention was deflected with a witch-hunt over broker remuneration.

“What is alarming is how the banks have manoeuvred the royal commission to centre around remuneration instead of their own misconduct. It has been a masterful move,” says Loan Market executive chairman Sam White.

For FBAA executive director Peter White, a best-case outcome would be the adoption of the CIF guidelines on remuneration, and, although “highly unlikely”, he says a worst-case outcome would be a blanket ban on commissions.

“There are no models that fully mitigate conflicts of interest, and in fact other models create a worse consumer outcome. Even a fee-for-service model paid by the borrower is conflicted,” he says.

His concerns also extend to the wider finance industry.

“I am concerned about the depth of mismanagement in the banks.

They don’t seem to be on top of their systems,” White says.

“The incredible lack of transparency in their dealings has eroded market and client trust, which is very concerning. I hope the royal commission brings most things, if not everything, to light so issues can be appropriately dealt with, as we need to maintain a strong, buoyant and healthy financial system.”

Concern has also been voiced about the impact on the mental health of brokers and bank staff. The FBAA has long advocated for more mental health support throughout the industry and will continue this work next year.

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Comprehensive credit reporting The introduction of comprehensive credit reporting from 1 July will bring Australia in line with 34 other OECD countries where CCR is already in place. It is expected to drastically level the playing field for borrowers, but there will be implications for brokers.

“To seize the opportunities and

component of a broker’s business, but this will overlap with the optimisation of client data as the physical and digital worlds converge.

The successful broker of the future will marry the two to strengthen trust with their customers and to find ways to serve them better.”

The result will be a personalised

“The key to successfully diversifying into a new area of lending is early engagement with a BDM” John Mohnacheff, group sales manager, Liberty capture value from customer data, brokers and aggregators will need to ensure that they have the right technology infrastructure and systems in place,” says Stephen Moore, CEO of Choice. “Customer data must be collected, managed and protected, and this needs to be a strong focus in 2019.

“Quality in-person conversations will continue to be an important

marketplace where, according to MoneyPlace founder Stuart Stoyan, fintechs in particular will be able to offer highly competitive rates.

“Nine times out of 10 we are able to give a borrower with CCR information a better interest rate because there is richer information about them,” he says.

MoneyPlace launched its broker

channel in mid-2018 and since then Stoyan has witnessed a growing number of brokers using personal loans to meet their customers’ holistic financial needs.

“Given the context of everything that could potentially impact the industry right now, CCR and open banking actually place brokers in a really significant advisory position,” Stoyan says.

As ASIC’s new credit card rules come into effect, he says this trend is set to continue.

“The impact of that is actually pretty significant,” Stoyan says.

“There is an opportunity for brokers to provide advice around this, help borrowers navigate the changes, and consolidate their debts through personal loans.”

That isn’t to say CCR will be good for everyone. For example, for those trying to rebuild their lives after a destructive relationship or emotional distress, CCR still fails to tell the full story.

“CCR reporting is data only – a one-dimensional account of a person’s credit history and conduct. There are no provisions to explain and very limited recourse against the data,” says Roger Ward, director at Cairns Mortgage Brokers.

As an example, he says the gender pay gap and a systemic lack of career progression make women more likely to have lower incomes.

KEY SKILLS FOR 2019 The list of skills required by brokers is constantly evolving.

PLAN Australia CEO Anja Pannek advises brokers to focus on ‘the four Cs’ – customers first, compliance-fixated, commercially orientated, and committed to the industry.

“Competition and a dynamic lending environment are going to be two defining pillars of the broking industry come 2019, prompting brokers to expand their skills further,” says Pannek.

“In addition, 2019 calls for brokers to build on their business expertise and skills by putting into place quality business processes that help them to work on their business, not just in it.”

Further, Pannek advises that brokers utilise resources and information from aggregators, industry bodies and the Combined Industry Forum, as well as lenders. Soft skills will also be in demand, as Advantedge GM Brett Halliwell explains.

“Brokers who are skilled in communicating

and drilling down to gain a clear picture of their customers’ financial circumstances will be able to provide the best outcomes.”

Brokers also need to be skilled in verifying customer information.

“Expense verification is critical to assessing borrowing power and serviceability,” Halliwell says.

Supporting these requirements, in 2018 Advantedge developed the Broker Interview Guide, an expense verification worksheet and an easy-to-use serviceability calculator.

Advocating continued professional development, Suncorp’s head of bank intermediaries, Mark Vilo, says there is always an opportunity to improve on the essential skills.

“Brokers need to have skills around good client conversations, and even though most think they do, they should and can always continue to learn.

I find that when I attend [education] programs, I’m always learning myself.”

“Further, they are over-represented when it comes to financial abuse in a relationship, they are more likely to retain custody of the children after a separation, and women can have credit impairment generated from joint liabilities held with a former partner. In theory, this could prevent thousands of women from accessing credit, solely on their ex-partner’s malice.”

Housing outlook Compared to 2017, home values across the capitals declined over the year, but Canberra and smaller capitals such as Hobart posted some of the strongest growth nationwide at 4% and 9.3% respectively, according to Tim Lawless, research director, APAC, at CoreLogic.

Sydney values have declined by 8.1% from their peak in July 2017 and Melbourne’s by 5.8% from a peak in November 2017. Further declines are likely in 2019, with prices in Sydney on track to fall by 15%.

“There are some mainstream economists who are suggesting Sydney and Melbourne could be down by as much as 20% from peak to trough, but I’m a little more optimistic than that,” Lawless says.

Looking ahead, he adds, “The best-case outlook would be that conditions start to level out, we start to see a rate of decline easing off and then the market finding a floor.

“Under a worst-case scenario, we would see credit tightening further, economic conditions slowing down, and potentially mortgage rates

A recession on the horizon?

According to Andrew Way, director at Semper Capital, the reset of $500bn in interest-only residential loans to 2023 could cause a significant leap in the number of properties on the market, at a time when prices are already facing pressure.

“About 19% of all loans with the big four will have to convert from interest only to P&I between now and 2020.

“For those who are at or close to negative equity, their properties will most likely end up on the market.”

Combine this with recent profit and share price declines among the majors, and 2019 could be the start of a challenging time.

The silver lining is that the nonbank sector – by this time able to compete on rate – is set to thrive.

However, as the banks look to reduce their exposure to high risk weighted average loans, owner-occupied commercial premises and loans to SMEs will likely be hit.

“Our big prediction for 2019 is that the banks will all but exit the SME lending space, and that will be a treasury decision, not a credit decision. It’s going to happen irrespective of the election,” Way says.

“The banking sector itself is set for a very rough period.”

The worst-case outcome could see Australia’s unbroken economic growth record come to an abrupt end.

“I think we might see Australia sailing closer to a recession in 2019, and that, of course, will not be a good thing,” he says. “It’s going to be an interesting time.”

“I think we might see Australia sailing closer to a recession in 2019, and that, of course, will not be a good thing” Andrew Way, director, Semper Capital starting to rise as well.”

It is also likely that Hobart will see a slowdown in its rate of growth.

“We also expect some of the smaller capital cities like Brisbane and Adelaide will continue to show growth, and particularly parts of Queensland, on the back of migration rates that are really ramping up interstate,” Lawless says.

Auction clearance rates will also show some recovery, although mostly due to a lower number of properties being listed.

The election While current issues in the housing market – such as affordability, supply and the constant threat of a rate hike – have all become highly politicised, they are unlikely to be solved by a change in government, regardless of what the major parties promise.

Real Estate Institute of Australia director and president Malcolm Gunning says, “Regulation has really changed lending criteria. Then you’ve got the halt in offshore investment, particularly in residential property,

A WORD FROM

MIKE FELTON

“At the conclusion of a challenging year, I would firstly like to offer my sincere thanks to thousands of professional, hard-working and talented brokers who represent our industry with distinction.

“Our major challenge into 2019 will continue to be working with the entire industry to convince policymakers to defend competition and avoid entrenching Mike Felton power into the hands of the large banks, which would result in deteriorating consumer outcomes in terms of choice, price and access to credit for already-marginalised groups.

“The MFAA will continue to stress to policymakers that the data on our industry is strong and indicative of an industry that is focused on producing great customer outcomes. It is worth noting that none of these regulatory reviews made findings of systemic consumer harm relating to broker commissions.

“We will have a multifaceted campaign underway through early 2019, engaging government and regulators to ensure the facts are strongly represented during the tumult of a federal election campaign.

“Alongside these efforts, we will be calling on brokers to help raise their collective voices to support industry-wide action in promoting the broker industry at a time when we can achieve maximum impact in relation to the royal commission’s final report.

“We look forward to continuing to work with our members and other key stakeholders in support of the industry in 2019.”

which has all but stopped.”

According to his observations, overall buyer demand has dropped 25% over 18 months, and Australia is set to see a repeat of the market conditions witnessed in the 1990s and early 2000s.

“It’s a 10-year cycle,” he says.

“The construction industry will complete what they have got going and there will be very few new residential developments commencing in Sydney, Brisbane and Melbourne.

“Couple that with the current debate on population – it would seem both parties are considering reducing immigration – and again it plays into that housing demand.”

While there are other unknowns that could always throw a spanner in the works – such as trade wars, natural disasters, a macroeconomic problem, or even conflict – Gunning says: “Really, it’s a pretty clear picture. The property market is a bit

like a battleship. It has come into the crossfire from the regulators and the banks, and cash is harder to source offshore at the moment because of the bond rate.

“What we are going to see is a lot of off-plan property sales won’t settle, and we will see a bit of blood in the water, so to speak, in 2019 and early 2020.”

When it comes to finance and banking, the FBAA’s Peter White has a different wish list.

“I would like to see that a longterm financial services environment is maintained through red tape, without eroding competition.

I would also like to see that complete transparency and accountability becomes the new culture,” he says.

Meanwhile, John Mohnacheff adds, “History shows us that, despite who wins the election, customers will always need free-thinking lenders to help them achieve their financial goals.” AB www.brokernews.com.au

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OPINION

NEW YEAR, NEW RULES The new year will bring many changes to property and finance, not least an end to the grace period around the Property, Stock and Business Agent Bill. John Manciameli, founder and CEO of Slipstream Australia, examines how brokers will be affected

brokers in the industry may not be aware that earlier this year the government made sweeping training reforms to the Property, Stock and Business Agent Bill. The amendment requires all advisers in the property space to have a certificate of registration licence and is accompanied by a 600% increase in training requirements for all real estate agents, mortgage brokers, financial planners, accountants and anyone else earning a commission from a property referral.

The updated legislation is designed to stamp out advisers who are taking advantage and earning a commission by referring potential property investors to unscrupulous operators who have vested interests.

Prior to the update, literally anyone (even a barista) could refer people to agents selling property, without having any credentials and while earning a commission – and the government was powerless to act.

Furthermore, the training was woefully inadequate. It used to take longer to get a bartender qualification than it did to get a real estate licence. This will all change now that the updated legislation is in effect.

When I heard about the changes, as a seasoned broker and investment

property specialist I welcomed the reforms and increased scrutiny with open arms because I think they will almost certainly act as a safeguard against unscrupulous practice

MANY

20

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clients to agents selling property right now is to make sure you’re licensed, otherwise the government will come after you and you could be fined or lose your broker licence.

If you can navigate the new landscape properly and obtain a licence, I think it will be a really exciting time for advisers and clients alike. Australians will now have peace of mind knowing that they can trust the advice of brokers, financial planners and accountants who are licensed to refer potential investors to property groups. And advisers can leverage this opportunity to specialise in property investment.

I firmly believe that mortgage brokers, financial planners and accountants are the ideal people to turn to for property investment advice as we understand individual financial goals and circumstances. There is an excellent opportunity for advisers to leverage the changing landscape in order to deepen their knowledge and expertise in property investment by seeking out additional property investment training opportunities.

This will mean that more of our clients will receive quality advice from professionals in the field who can provide them with a full analysis of investment opportunities, including all the facts and figures about the whole life cycle of a property investment, from purchase to management and eventually the sale of the asset. The client will then be able to make an informed decision about a purchase.

With the royal commission making it harder to earn a decent living as a mortgage broker, diversifying into property investment also makes business sense.

According to the MFAA, the average

Make sure you’re licensed, otherwise the government will come after you and you could be fined or lose your broker licence

John Manciameli Founder and CEO, Slipstream Australia

in the real estate industry and, ultimately, improve transparency and long-term relationships with our clients. This, combined with the royal commission, means that never before has there been greater critical observation of property advisers across the board. While of course this is tough, it’s also necessary.

When the grace period allowing advisers to adjust to the changes ends – which is likely to be early in 2019 – the government will be set on prioritising enforcement of the changes and cracking down on those without a licence. So, what should we all be doing to ensure we’re compliant before the grace period ends?

The main priority for anyone referring

mortgage broker earns gross upfront commissions of just $83,000, yet mortgage brokers are working twice as a hard to earn this now, thanks to the royal commission. It’s a sad indictment to say that you could be much better off becoming a bus driver than a mortgage broker.

Rather than seeing the reforms as just one more hurdle for advisers, let’s see them as offering a new opportunity – one that will improve the industry immeasurably, and one that could potentially open doors for you to develop a new revenue stream, and to reinvigorate or grow your business at the same time as developing highly sought-after skills in a related field. What could be more fulfilling than that? AB

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21

PEOPLE

Have an interesting deal?

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

Melanie.Mingas@keymedia.com

A BIG DEAL

Nicole Cannon, founder and director of Pink Finance, explains how she helped her clients navigate a complicated SMSF purchase while also dealing with a family illness and a neglectful bank

THE FACTS

Loan size and term $555,000 for 30 years

Client Male business owner and spouse

Goal Consolidate loans; remove home as security

Location Sydney, NSW

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Aggregator AFG

THE TAKEAWAY

as one of the client’s children was very ill.

They were completely overwhelmed with information and were facing a difficult time emotionally, too. They didn’t know who to believe or listen to, but they did know that they needed the advice and services of a finance professional.

Adding to the pressure, their current lender was phoning on a regular basis, and even the accountant had found some roadblocks. It was fair to say the whole situation was very stressful.

THE SCENARIO

Referrals are a great source of business and are testament to a strong professional reputation.

This particular client was a couple referred to Pink Finance by their relative, who happened to be an accountant. They had a commercial property, from which they operated a business, and they needed two loans to be refinanced.

The first business loan was secured by the client’s home, and the other was a commercial property loan. They needed to be consolidated into a single, term loan.

The first twist in the tale was that the business loan had been neglected by the bank. Not only had the loan expired 18 months prior to this, but the bank had not renewed it and the loan statements carried no record of interest charges or repayments. Further, the bank manager who looked after the client initially was now on parental leave and there was immense pressure from the bank to discharge the loan as soon as possible.

The accountant had advised the client to set up a self-managed super fund and then use that to take over the loans. However, the client had very little in their super account, and the only asset would have been the property.

It was possible to structure the loan in this fashion, but the client had only basic knowledge of SMSFs and how complicated they could become when leveraged in this way.

On top of the financial challenges, there was also significant personal strain

Lender Thinktank

they seek further independent financial advice on their overall situation.

The entire scenario was resolved by not proceeding with the SMSF option and instead opting for a simple refinance.

This meant the loan was secured by the commercial property, and, further, the home security and expired term loan could then be taken out of the equation.

Following this, I introduced myself to the lender that had provided the expired loan, and commenced constant and regular communication on its status and updates. I negotiated with them to ensure retrospective penalty interest was not charged. This was a huge win for the client.

The loan settled as a single commercial loan; the business loans were refinanced and the client’s principal place of residence was removed from the title.

THE SOLUTION

Complicated products and procedures can often prevent a person from seeing the wood for the trees, so to speak. In this case, the client was caught up in the

For any client, the most pressing lesson from an experience like this is the importance of knowing when something is wrong.

It’s of paramount importance that clients don’t allow ‘advisers’ to influence them into believing what they know is wrong. Always keep stating the facts as you know them and reminding yourself of them regularly; that’s useful for brokers, too.

My second takeaway is that your clients and anybody who is advising them should have a strong grasp of the complexity of a transaction, especially when dealing with SMSFs. This deal proceeded with Pink Finance because of the relationship and care we provided when explaining the scenario to the client, and the fact that we were also mindful of their family concerns.

At one stage the client said their plan was to ignore the mounting financial problems they faced, and it was my role to highlight the serious consequences of this.

I negotiated with the lender to ensure retrospective penalty interest was not charged. This was a huge win for the client

Nicole Cannon Founder and director, Pink Finance

SMSF structure and coverage of SMSFs in the news. These factors, and the conversations they had had with other finance professionals, were clouding their judgment.

Having the professional experience to recognise this – as well as being detached from their additional sources of stress – meant that I was able to bring clarity to their situation and help them to successfully navigate the minefield, by recommending

The client was extremely grateful for the patience, care, knowledge, communication and guidance that I provided throughout this time, and I have since received several referrals. Everyone was happy with how this worked out, and I learnt so much along the way.

Thinktank, as the refinancing lender, was incredibly patient through the application, and mindful that the clients should receive the best possible outcome. AB

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Don’t miss this opportunity to have your say on lender performance - you could WIN a Glenfiddich 21 Year Old Gran Reserva Scotch Whisky (rrp $199).

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PEOPLE

CAUGHT ON CAMERA MoneyQuest recognised leading brokers in each state at its national conference, which took place on the Gold Coast in October. MoneyQuest managing director Michael Russell said, “Our national conference was the perfect opportunity to recognise our champion performers and celebrate their success. Now in our third year, we find ourselves surrounded by an amazing group of franchise owners who love what they do and care deeply for their clients.� The winners were Peter Baumgartner (Victoria), Paul Wright (NSW), Terry Gardiner (WA), Joe Pitari (Queensland) and Damian Harrison (SA).

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THE CHOICE IS YOURS

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

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

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

25

DATA

VICTORIA

WA SPOTLIGHT

Melbourne called on to manage investor expectations Despite Victoria’s downturn mirroring that of NSW over recent months, Melbourne continues to present opportunities and remains an attractive option for many investors. Damien Lee, head of acquisitions at Caifu, is optimistic about the outlook, as long as expectations are managed appropriately.

“In the Melbourne marketplace, you can buy a great affordable property for the quality that you get; however, the rental yield is still quite low,” says Lee. “That inhibits quite a few purchases, based on the fact that it’s almost cash flow negative in Melbourne still.”

However, he is currently sceptical of moving too far outside the city and its surrounds.

“Regional Victoria has gone a little quiet – we don’t hear too much about that any more,” Lee says. “It’s had its run; it’s had its own factor to go in. The smaller cities don’t take much to hit an oversupply.”

Area

Type Median value

Quarterly

12-month

growth

growth

Melbourne

H

$710,000

-7.3%

7.1%

VIC Country

H

$350,000

-2.8%

7.6%

Melbourne

U

$525,000

-3.3%

3.9%

VIC Country

U

$255,000

-5.6%

2.2%

NEW SOUTH WALES

Sydney’s shortage to continue as competition heats up NSW continues to absorb much of the market slowdown as interest rates remain relatively steady and property prices continue to dip. Existing investors may have concerns about the viability of their properties, while newer investors may see this as an ideal time to purchase.

Sydney remains the most expensive and most valuable city in the state, says Kate Forbes, national director of property strategy at Metropole Property Strategists. She suggests the city “will continue to experience a chronic shortage of homes”.

These changes come in the wake of five years of strong growth, and recent price shifts indicate a “soft landing” after a period of prosperity.

“Strong economic growth and jobs creation is leading to population growth, underlying demand is ahead of supply, and the rental market is tightening,” says Forbes.

Competition also remains strong in Sydney.

Forbes points to international interest from tourists, migrants and investors as key factors.

Area

Type Median value

Quarterly

12-month

growth

growth

CHANGING TIMES

Figures show house prices in Perth continue to be affected by local employment trends, but those based in the city say buyer sentiment is changing

Perth, household income has grown at a faster pace over the past five (3.7%) and 10 years (30.6%) than median dwelling prices, at 1.1% and 11.6% respectively, leading to a significant improvement in affordability. However, Perth house prices keep falling due to local economic conditions, poor consumer confidence and an adverse supply-to-demand ratio.

“While the Perth market may level out in the next six months, it’s much too early for a countercyclical investment in the west,” says Kate Forbes, national director of property strategy at Metropole Property Strategists.

“I can’t see prices rising significantly for a number of years.”

Philippe Brach, CEO of Multifocus Properties, describes the market as “volatile”, and it is this very volatility that has made the state capital such an intriguing prospect for many, offering the possibility of quick growth and big profits.

Yet Brach suggests that such an approach is short-sighted, and not the way a balanced investor should look at potential investments.

“When you’ve got the mining boom, the market just goes nuts. When you’ve got the mining downturn, it goes down by 25%,” says Brach.

For Forbes, the solution is clear. “To get people back into the state more jobs will need to be created.”

Perth’s – and the wider state’s – reliance on mining as an industry has been understandable but is now yielding other consequences for investors in WA. Brach believes greater diversity is needed in order to secure a less volatile property market.

“While the mining industry’s got a massive role to play in the foreseeable future, I don’t want investments to be exposed to a one-horse economy,” he says. AB

H

$915,000

-9.4%

0.0%

Median price (houses)

NSW Country

H

$470,000

-1.7%

4.4%

$994,709

Sydney

U

$700,000

-4.1%

-0.9%

NSW Country

U

$400,000

2.6%

-0.6%

www.brokernews.com.au

Outlook improves with news of mining industry’s plans for investment In the last quarter, we have noticed a significant change in sentiment in WA, particularly in the first home buyer and upgrader markets.

Employment opportunities in the mining sector are opening up again, and this has a natural flow-on effect on other industries. The major mining groups have announced their intentions to invest billions of dollars in the coming years, and the press around these new projects has increased confidence in borrowers with respect to the local economy, the property market, and the overall outlook for WA for the next five to 10 years.

With record-low interest rates, affordability is front of mind for most borrowers. Most see a real opportunity to get into the market now, with a lot of borrowers feeling it has hit the bottom.

After a tough few years in decline, and lending regulations still limiting borrowing for investment, WA borrowers are realistic and hope to see small, yet consistent growth in the market over the next few years as the supply and demand ratios balance out.

Bianca Patterson Director, Calculated Lending

SUBURB TO WATCH: WEMBLEY

Sydney

26

BROKER PERSPECTIVE

IN

Median price (units) $291,411

Source: CoreLogic

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

-0.9%

0.5%

9.9%

3.1%

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

-8.1%

-17.2%

-16.7%

3.7%

AUSTRALIAN CAPITAL TERRITORY

Stamp duty phase-out proving to be a double-edged sword OPPORTUNITIES AND KEY INFRASTRUCTURE

Transport

Leisure

Perth Hub

Infrastructure

$2.3bn road and rail package expected to ease congestion

60,000-capacity venue in Perth will host sports and music events

$1.4bn precinct is planned for Perth City Link

2018 Federal Budget allocated $3.2bn to the state

HIGHEST-YIELD SUBURBS IN WESTERN AUSTRALIA Suburb

Type

Median price

Quarterly growth

12-month growth

South Hedland

U

$79,500

-1%

-1%

Kambalda East

H

$59,000

2%

-19%

Newman

H

$155,000

3%

-2%

Kambalda West

H

$90,000

-16%

-36%

Rangeway

H

$90,000

3%

-8%

Though ostensibly meant to reduce costs, the gradual phase-out of stamp duty has resulted in higher land taxes. Housing affordability in Canberra has also declined slightly with the increase to 19.7% in the proportion of income required to meet home loans. And that has been due to rising property prices in Canberra, says Malcolm Gunning, president of the Real Estate Institute of Australia.

“As far as home affordability, prices, rental affordability and rents, it’s tracking in much the same way as Melbourne and Sydney, where you’re seeing vacancy rates rise,” says Gunning, adding that there has been “strong local investment into residential properties in Canberra”.

Rental affordability also declined in the March quarter when the proportion of income required to meet the median rent increased to 18%. At a 0.03% drop in affordability, it was not a significant decline but is something to be mindful of going forward.

Area

Type Median value

Quarterly

12-month

growth

growth

Canberra

H

$697,750

0.6%

6.2%

Canberra

U

$435,000

-1.8%

0.2%

www.brokernews.com.au

27

DATA

SOUTH AUSTRALIA

H

$290,000

-3.3%

1.2%

Adelaide

U

$389,200

5.2%

4.3%

SA Country

U

$168,000

-32.3%

-2.2%

MEDIAN HOUSE AND UNIT PRICES

Former retirement hotspot posts state’s strongest growth

$1,000,000

Area

Type Median value

Quarterly

12-month

growth

growth

Brisbane

H

$540,000

-0.9%

2.9%

QLD Country

H

$425,000

-2.3%

0.0%

Brisbane

U

$399,000

-2.3%

-1.9%

QLD Country

U

$383,000

-3.0%

0.7%

28

www.brokernews.com.au

Total auctions

44

Cleared

3

Uncleared

19

Clearance rate

QUEENSLAND

13.6%

Houses

$600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0

$545,000

$700,000

$722,500

$800,000

$680,000

$900,000

$875,000

Long known as a retirement hotspot, Noosa is emerging as a strong prospect for investors.

According to a September 2018 report by the Real Estate Institute’s Queensland Market Monitor, Noosa has seen the strongest growth in the state, with its median house price growing 6.9% over the 12 months to June, and units growing 10.2%.

The Gold Coast is already the biggest apartment market in Queensland, thanks in no small part to its popularity with both holidaymakers and retirees.

“There is limited housing supply being added to Noosa, and competition is obviously driving price growth,” says REIQ CEO Antonia Mercorella.

Indeed, the potential is there for further growth into the future once the ongoing developments are completed.

“Looking forward, once the Bruce Highway upgrades are completed and commuting to Brisbane becomes more feasible, it’s likely we’ll see added demand for Sunshine Coast living,” Mercorella says.

PERTH

Sydney Melbourne Brisbane Adelaide

Perth

Hobart

Darwin

Units

$401,000

SA Country

52.4%

$670,000

3.4%

39

$377,500

1.6%

Uncleared

$460,000

$467,500

43

$317,500

growth

H

Cleared

$455,000

growth

Adelaide

148

$365,000

12-month

Total auctions

Clearance rate

$485,000

Quarterly

ADELAIDE

$307,500

Type Median value

There were 2,689 homes taken to auction over the week, down from the previous week when 2,745 auctions were held and much lower than this week last year when 3,438 auctions were held across the combined capital cities.

Preliminary results show a clearance rate of 46.9%, up from 42% the week before and the lowest clearance rate recorded since June 2012.

However, one year ago, a clearance rate of 61.1% was recorded.

Melbourne saw 1,137 auctions with a preliminary clearance rate of 44%, up from 41.3% across 1,401 auctions the previous week.

Over the same week last year, the auction clearance rate was significantly higher, with 65.5% of 1,736 auctions returning a successful result. There were 1,021 auctions held in Sydney, making it the city’s fifth-busiest week of 2018, recording a clearance rate of 52.4%, up from 42.8% across 875 auctions the previous week. Across the smaller auction markets, Perth and Tasmania were the only places to see auction volumes fall week-on-week.

$478,000

Area

WEEK ENDING 25 NOVEMBER 2018

$363,000

A variety of factors will determine the future of the market in Adelaide. Malcolm Gunning, president of the Real Estate Institute of Australia, believes the nature of jobs has a significant role to play, both now and in the years ahead.

“What’s driven the decline in Adelaide is jobs.

One of the biggest industries now is education,” he says. “Adelaide University is a major income producer, and you’ve got your wine and tourist industries, but tourism hasn’t been as popular.

So what we’re seeing is, after a five-year period of decline, Adelaide is now starting to stabilise.

But until there is more work in Adelaide, we don’t see any major growth in prices.”

Damien Lee, head of acquisitions at Caifu, is slightly more optimistic, pointing to the aviation and logistics industries. However, he agrees that there is still more to be done.

“They need to get a few big projects and infrastructure,” Lee says.

CAPITAL CITY AUCTION CLEARANCE RATES

$536,750

Jobs underpin Adelaide’s performance, while university drives prospects

Canberra

CAPITAL CITY HOME VALUE CHANGES Capital city

Weekly change

Monthly change

Year-to-date change

12-month change

Sydney

-0.3%

-1.2%

-6.9%

-7.9%

Melbourne

-0.4%

-0.8%

-5.4%

-5.6%

Brisbane

0.0%

0.1%

0.4%

0.3%

Adelaide

-0.1%

-0.1%

0.9%

1.5%

Perth

0.0%

-0.6%

-3.6%

-4.0%

Combined 5 capitals

-0.2%

-0.8%

-4.9%

-5.5%

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

BRISBANE CANBERRA Total auctions

145

Cleared

50

Uncleared

59

Clearance rate

Total auctions

192

Cleared

42

Uncleared

66

Clearance rate

39.8%

45.9%

SYDNEY Total auctions

1,021

Cleared

348

Uncleared

316

Clearance rate

52.4%

TASMANIA

MELBOURNE Total auctions

1,137

Total auctions

2

Cleared

390

Cleared

0

Uncleared

496

Uncleared

0

Clearance rate

Clearance rate

44%

TASMANIA

Area

Strong leisure and culture proposition driving demand Tasmania has its own momentum, driven by people's strong interest in relocating there for its well-developed food and lifestyle culture.

“If you’re a self-funded retiree and you have a particular hobby or interest – bushwalking, these sorts of things – this [state] is becoming an alternative, particularly because of the cost of living in Melbourne,” says Gunning.

“This is still a very affordable place to live. It has a very well-developed culture which attracts a lot of people.”

Henry Fields, property research and acquisitions coordinator at Client Best Interest, is also optimistic. “Look at any major city or town in Australia and you’ll generally find education is one of the top three employers,” he says.

Creating a university town will give Tasmania what it “sorely needs”, says Fields – young people.

N/A

Type

Median value

Quarterly growth

12-month growth

Hobart

H

$440,000

-3.3%

12.8%

TAS Country

H

$290,000

-3.0%

7.4%

Hobart

U

$345,000

0.0%

12.0%

TAS Country

U

$242,000

-0.2%

1.8%

All data sourced from CoreLogic.com.au

www.brokernews.com.au

29

PEOPLE

Aggregator Connective

IN THE HOT SEAT Award-winning broker Nathan Vecchio, director at Hunter Galloway Finance, reflects on his recent award from the FBAA and looks ahead to the personal and professional accomplishments that could be on the cards for him in 2019

Who or what inspired you to become a broker?

I started in mortgage broking in 2015, joining my brother Josh A who had recently started Hunter Galloway. I was fortunate to have Josh and a few other experienced brokers as mentors to learn from others what works and what doesn’t work in the industry.

I’ve been a member of the FBAA since I started in mortgage broking.

This has given me access to other high-performing brokers across the industry via their podcasts and conferences that I wouldn’t otherwise have access to.

Q

What’s one of your recent career highlights?

Winning the FBAA’s National Broker of the Year award was one A highlight and really humbling for me, but I’d say my greatest achievement in the past 12 months has been paying it back to the industry through Top Broker. Across the site and blog I give as much back as I can to a community that has given so much to me. I have also been fortunate enough to be named FBAA Finance Broker of the Year (Qld) in 2017 and one of MPA’s Top 100 Brokers of 2018, as well as receiving the Vow Financial Rising Star of the Year 2016 (Qld) and Bankwest New Support of the Year 2017 awards. I was also a finalist at the Australian Mortgage Awards in 2017.

Q

What are the key best practice skills brokers need at this time?

I think my greatest skill is self-discipline and being consistent.

A For me consistency beats intensity, and it starts with the small things – when I started I made 11 calls before 11am to new customers and prospects, and as the business has grown I still use this same approach in keeping in touch with referral partners and customers.

Q

What’s one thing, personal or professional, that you hope to achieve in 2019?

I got married in 2018, so it might be time to start a family!

A Professionally, I want to continue focusing on providing better experiences for our customers and helping them in their journeys.

Internally, process excellence is an area we have spent a lot of time focusing on at Hunter Galloway Finance. We dedicate two hours per month on staff training, including feedback sessions from our staff on areas we can improve. I want to continue to nurture and grow our team into 2019. AB

Q

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