Australian Broker 16.02

FEBRUARY 2019 ISSUE 16.02

Preparing for 2020 Hayne’s full recommendations and what they mean for brokers /16

Evolution of the ‘good’ borrower How and why specialist lending can help brokers /22

NOAH BRESLOW OnDeck’s global CEO explains how the online lender is boosting transparency in fintech /14

Caught on camera All the action from FAST’s inaugural PD day /24

ALSO IN THIS ISSUE… A big deal How one broker transformed his clients into prime borrowers /20 Housing market data The challenging dynamics driving performance in the NT /26 In the hot seat Advice for career success from the director of Lend Wright /30

NEWS

IN THIS SECTION

Lenders “Clean sweep” as lending drops across the board /04

Associations Volumes down, applications up in latest index /06

Technology First digital bank receives full APRA licence /10

Regulators New watchdog to oversee regulators /12

Market “Difficult year ahead” for regional institutions /08

www.brokernews.com.au FEBRUARY 2O19 EDITORIAL Editor Melanie Mingas News Editor Rebecca Pike Production Editor Roslyn Meredith

DATES TO WATCH

Upcoming can’t-miss events

13 – 28 FEBRUARY

19 FEBRUARY

1 9 F E B R U A R Y

MFAA PD days

Wealth Through Property

FBAA Gold Coast conference

Continuing the MFAA’s professional development agenda for 2019, a series of PD afternoons will take place across the country, starting in Sydney (13 Feb) and followed by Melbourne (14 Feb), Perth (18 Feb), Adelaide (20 Feb), Launceston (26 Feb), Darwin (27 Feb) and Canberra (28 Feb).

This event will introduce Blue Wealth’s business model and research methodology to new and established brokers – and their clients. Throughout the evening, the investment specialists will showcase their activities and success stories at the first Sydney intro event of the year, from 6pm at Hilton Sydney.

The first professional development summit of the year will be held at Quality Hotel Mermaid Waters. There will be industry updates from the FBAA, and Darren Loades from Insurance Advisernet will provide insights and advice on buying or renewing PI insurance. Delegates can register online.

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

1 9 F E B R UA RY–1 3 M A R C H

20 - 22 FEBRUARY

22 FEBRUARY

Connective PD day series

SMSF Association National Conference

Mental Health in the Workplace

The Connective PD day series returns in 2019 with a session at South Australia’s ACC on February 19, followed by events at The Crown, Perth (20 Feb); Bowen Hills, Queensland (26 Feb); Royal Randwick, NSW (27 Feb); and The Crown, Melbourne (March 13).

Delegates at this event can enhance their technical knowledge of the SMSF sector and also source advice and support.

Taking place in Melbourne, the conference includes a leadership breakfast, workshops and networking, and on 19 February there will be an exclusive specialist-only session for association members.

Leaders from all industries and sectors are invited to attend this one-day training course designed to provide participants with the knowledge and skills to build confidence when tackling the rising issue of mental health in the workplace. Organised

by Informa, the event will take place in Melbourne.

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, Seoul

4 – 5 M A R C H

2 M AY – 6 J U N E

5 JUNE

Responsible Lending and Borrowing Summit

MFAA National Roadshow and State Excellence Awards

Broker Business Exchange

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 the opportunities to improve the industry for the future.

The association’s annual roadshow and awards kicks off in Sydney before taking in Adelaide, Perth, Brisbane and Melbourne, concluding with the national awards in Melbourne on 25 July. The roadshow will feature workshop and conference sessions, and offer networking opportunities.

Nominations for the awards are now open.

2

www.brokernews.com.au

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 that is set to feature 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.

www.brokernews.com.au

3

NEWS

LENDERS BROKER FEEDBACK PROMPTS PROMO RATE has extended its SME loan promotions following broker feedback. They include the ‘Beat it by 5bps’ offer, in which Suncorp will beat any competitor by 5bps on new variable lending over $200,000, at up to 4.39% per annum for residential security and 4.69% per annum for commercial security. National small business and commercial manager Robynne Frost said, “Feedback from our broker partners told us that this offer was helping them build strong relationships with their customers.”

SUNCORP

Sep-06 HOME LOAN SIZE FALLS FROM RECORD HIGH Source: ABS, CommSec

Average new home loan size in Australia $450,000

$400,000

$350,000

$300,000

$250,000

NAB CONFIRMS INTEREST RATE MOVE claiming it had saved AFTER 930,000 customers a collective $70m since September, NAB has become the last major bank to increase rates. Owner-occupiers with principal and interest loans will see rates increase by 0.12%, compared to 0.16% for investors and interest-only borrowers, effective from 31 January. Mike Baird, chief customer officer for consumer banking, said, “We wanted to reward our existing customers for their loyalty and held off as long as we could.”

“We’re not a bank that has to be forced to do the right thing through regulation; our members know we work for them alone” Steve James CEO, Teachers Mutual Bank

4

www.brokernews.com.au

$200,000 Jan 2008

Jan 2010

Jan 2012

Jan 2014

‘CLEAN SWEEP’ AS LENDING DROPS ACROSS THE BOARD Tighter lending rules have cascaded through the market, with lease and personal finance posting the greatest decline tightening of lending conditions is extending beyond home loans, and other areas of the lending market are now also in decline, according to the latest figures from the ABS. Released on 21 January, the November 2018 figures show that, in seasonally adjusted terms, the value of lending for housing finance, personal finance, commercial finance and lease finance all fell.

Of all lending segments, lease finance saw the biggest decrease at 2%, dropping from $607m in October 2018 to $595m in November 2018. Elsewhere, personal finance saw the second biggest drop of 1.7% from $5.7bn to $5.6bn, and housing finance for THE

owner-occupiers, excluding alterations and additions, dropped by 1.4% from $20bn to $19.7bn.

Meanwhile, commercial finance dropped 0.2% from $43.6bn to $43.5bn, but in trend terms it increased by 0.5%.

Steve Mickenbecker, Canstar’s group executive of financial services, described it as “a clean sweep”.

“A 10% fall in the value of your house is a sure way to dampen enthusiasm for opening up the wallet,” he said.

“There is nothing like a decline in house prices to slow up spending, and with Sydney and Melbourne prices so far down, it’s not surprising that personal finance is down 1.7% and lease

Jan 2016

Jan 2018

finance down 2% seasonally adjusted.”

The ABS figures report the purchase of dwellings for rent or resale under commercial finance.

Breaking down those numbers, the value of investor loans fell by 3.3% in November.

Additional figures from the Housing Industry Association showed that lending to owneroccupiers building and purchasing new homes in the three months to November was down by 8.7% in NSW, 12.2% in Victoria, 22.1% in Queensland, 4.4% in SA, and 11.4% in WA. Tasmania was the only state where lending increased, posting a gain of 6%.

“There is an expectation that further falls in property value during 2019 will influence a continued level of consumer conservatism, reducing demand for lending,” Mickenbecker said.

“On the supplier side, we don’t anticipate nor expect the banks to significantly relax lending criteria from where they are today.”

www.brokernews.com.au

5

NEWS

A G G R E G AT O R S WHISTLEBLOWER PLATFORM LAUNCHED 1,500 brokers are to benefit from a partnership with Your Call that will enable all employees and franchisees to raise workplace concerns through an externally managed, confidential platform. The announcement comes ahead of major legislative changes to whistleblower protections in Australia.

COO Stephen Scahill said, “We know the change is coming, but why wait?

We support the intentions of the bill and believe it will have a beneficial influence on workplace culture.”

LOAN MARKET’S

VOLUMES DOWN, APPLICATIONS UP IN LATEST INDEX Figures from AFG reflect market sentiment, showing application values are down 8% while volumes reached 25,000 in the last quarter AFG quarterly Mortgage Index has praised nonmajor lenders for continuing to meet credit demand through deals facilitated by brokers.

AFG lodged $13bn in home lending applications in the final quarter of 2018, down 8% on the previous quarter. According to the firm, tighter credit conditions are having an impact on volumes “in every state”.

“In clear evidence of the vital role mortgage brokers play in delivering a competitive home loan market, non-major lenders’ market share is at a record high of 42.1%,” said CEO David Bailey.

“The non-majors are becoming an increasingly important part of the assistance brokers provide to THE

6

www.brokernews.com.au

customers. Penetration has increased across all categories of borrowers, with non-major market share gains recorded for refinancers (now 46.8%), upgraders (42%), first home buyers (32.1%) and investors (43.4%).”

AFG also issued a warning to policymakers about the importance of ensuring that credit and consumer choice did not become “sacrificial lambs” in the regulatory response to the royal commission’s recommendations.

“Customers must be kept first and foremost in any discussion of changes to the financial sector,” said Bailey.

“Although overall volumes are down our brokers still lodged more than 25,000 applications during the

quarter. This is a fraction of the number of consumers they help with post-settlement and ongoing reviews and support.”

The latest MFAA data shows the mortgage broker market share has reached 59.1%, a record Bailey said was “the strongest evidence that consumers were more than satisfied with the customer service provided by brokers”.

“A spike in those choosing to fix their interest rates indicates borrowers are bracing for more bank-led rate rises, with quarterly volumes increasing from 19% to 23.1%,” he added.

“Politicians and policy makers should not lose sight of the enormous value Australian consumers place in the services that these small businesses provide. As an industry that relies on customer recommendations, today’s figures demonstrate that consumers are overwhelmingly satisfied with both the service provided by mortgage brokers and the real benefits of competition that we deliver.”

INDUSTRY HEADS DISCUSS CIF REFORMS director and CIF deputy chair Mark Haron has praised the CIF reforms for boosting transparency in the industry. Haron said the CIF’s work met ASIC requirements while recognising the “competitive benefits” of brokers. “With 59.1% of home loan borrowers relying on brokers … we believe that these reforms will provide greater transparency and reinforce brokers’ focus on providing good customer outcomes,” he said.

CONNECTIVE

“In our view, aggregators will play an essential role in shaping the broking industry of the future” Brendan Wright CEO, FAST

www.brokernews.com.au

7

NEWS

MARKET FIRST HOME BUYER SHARE REACHES SIX-YEAR HIGH home buyers made up 18.3% of all owner-occupier loans taken out in November, according to ABS figures, representing their biggest share of new housing loans in more than six years. Meanwhile, the value of investor commitments dropped 4.5% month-on-month and 23.4% year-on-year, in seasonally adjusted terms. Overall, the value of home lending fell 2.5% in November after an unexpected uptick in October.

Owner-occupied housing fell in value by 1.4%, seasonally adjusted.

FIRST

HOUSING AFFORDABILITY IMPROVES IN SYDNEY and Melbourne posted the highest gains in affordability in the latest Housing Industry Association Affordability Index. Sydney’s affordability increased 11.3%, with Melbourne (5.9%), Perth (5.7%), Darwin (3.2%) and Brisbane (0.8%) completing the top five.

Hobart was one of only two locations below their 20-year average, reflecting ongoing demand. HIA senior economist Geordan Murray attributed Sydney and Melbourne’s performance to new dwelling completions and market value declines.

SYDNEY

“The time taken to gain approval for a loan to build a home has blown out from two weeks to more than two months” Tim Reardon Principal economist, Housing Industry Association

‘DIFFICULT YEAR AHEAD’ FOR REGION’S FINANCIAL INSTITUTIONS Banks’ vulnerability increased by “large and rapid fall” in property prices, according to rating agency’s regional monitor report banks “remain vulnerable to a large and rapid fall in property prices” as financial institutions across the APAC region brace for a “more difficult year”, according to global ratings agency S&P. In its Q1 monitor report, the agency predicts “higher interest rates, as well as volatile domestic currencies, bond markets, and property prices” will drive headwinds across the region.

Further, while regional bank ratings are set to continue the stability seen in 2018, a “significant and abrupt credit cycle downturn” could see some of the region’s portfolio of 200 rated institutions downgraded. Currently, 87% are rated BBB or higher.

AUSTRALIAN

“[This] would likely result in negative ratings momentum for some Asia-Pacific banks. This is despite our expectation that most banks can contend with a moderate and gradual negative turn in the credit cycle at current rating levels,” said S&P credit analyst Gavin Gunning.

While the report downplays the likelihood of a “disorderly fall in property prices”, it does acknowledge that an “ordered” decline is underway – and is set to continue for the next 12 months.

“A sharp correction, if accompanied by broader macroeconomic weakening, would very likely hurt the banks,” the report stated. “At the same time, based on our forecast for

continued good economic growth, immigration-driven population growth, low unemployment, and low interest rates, we consider that a disorderly fall in property prices remains unlikely.”

Despite the positivity, Australia’s property market made global headlines last month when Fitch Ratings predicted that its house prices could see the biggest decline of 24 top global markets in 2019.

Fitch calculates that, following the 6.7% national average peak-to-trough decline of last year, prices could decline a further 5% this year.

Looking ahead to 2019, CoreLogic predicts that home values will fall further as tight credit conditions continue, and the unit market will also experience weaker conditions.

Meanwhile, lifestyle markets outside the capitals are likely to continue to see increased demand as more people look to escape the major cities.

PAIN AND GAIN REPORT, SEPT 2018 QUARTER Source: CoreLogic

40.9% of profits from capital city sales were made in Sydney

8

$14.06bn

11.1%

$488.1m

profit from nationwide property sales

of all homes resold at a loss

losses from property sales

www.brokernews.com.au

32.5% of profits from capital city sales were made in Melbourne

SYDNEY 2 MAY | ADELAIDE 9 MAY | PERTH 16 MAY | BRISBANE 30 MAY | MELBOURNE 6 JUNE

Enter Now!

If you or your business has demonstrated exceptional customer service, professionalism, ethics, growth and innovation in 2018, then enter the MFAA Excellence Awards for the chance to be recognised.

INDIVIDUAL AWARDS / BUSINESS AWARDS / LENDER AWARDS 22 AWARDS TO ENTER OR VOTE FOR Entries in the MFAA Excellence Awards are judged equally based on excellence and professionalism across all areas of business. They provide an unparalleled opportunity for brokers and businesses of all sizes and experience to be recognised for the quality of their work.

According to past winners and finalists, MFAA Excellence Award recognition can…

• Win new clients • Secure new referral partners • Elevate the profile and status of your brand in the eyes of your peers

• Improve loyalty with existing customers • Increase team morale • Lift your professional profile and build your reputation

NEW IN 2019! Nominate a deserving broker, business, BDM or loan administrator for a MFAA Excellence Award. Your nominee will receive an email on your behalf that encourages them to enter.

TO ENTER, VOTE, NOMINATE OR FOR MORE INFORMATION, Visit: awards.mfaa.com.au

Entries close: Monday 25 February 2019 Terms and conditions: Visit awards.mfaa.com.au for full and up-to-date terms and conditions. Entry in MFAA Excellence Awards, and voting in Lender Awards, is open to MFAA members or nominated representatives only. The MFAA Excellence Awards are independently judged and are audited by Hall Chadwick. www.brokernews.com.au

9

NEWS

TECHNOLOGY

1:4 GDP BOOST FROM SME LENDING conducted by Prospa and RFi Group has concluded that for every $1m loaned by Prospa there is “a corresponding $4m increase in GDP”. Greg Moshal, the fintech’s co-founder and joint CEO, said, “The analysis shows responsibly managed lending to small business, supported by smart technology and a great customer experience, is having an economy-wide impact.

The results are greater than we had ever imagined and give us an immense sense of pride.”

RESEARCH

FIRST DIGITAL BANK RECEIVES FULL APRA LICENCE Challenger bank becomes the first digital institution to receive a full APRA licence, paving the way for a home loan product launch by year end and high fives” swept the Volt Bank offices on 22 January as it became the first digital bank to be granted a full banking licence by APRA. The team at the challenger bank has worked “tirelessly” since receiving a restricted ADI licence last May, and CEO Steve Weston has now confirmed that home loans will be introduced by the end of 2019.

Speaking to Australian Broker, Weston said, “It’s excitement beyond belief. It sounds hard to get a banking licence, but the truth is it’s far more difficult than it sounds.

“The team here worked tirelessly. This morning when we received the news I did a tour “TEARS

round the office and there were tears and high fives. It was lovely.”

Volt Bank will offer savings and transaction accounts, term deposits and personal loans. It also plans to introduce a full suite of home loan products, facilitated almost entirely by brokers.

“We’ll have a very compelling home loan composition, one with mortgage brokers in mind,” Weston said.

“We’re almost at 60% brokeroriginated home loans, and I think that’ll only go in one direction.

“What we’re doing is respecting consumers’ choice. They’re saying they want to talk to brokers because they have a stronger value proposition.”

Volt Bank will also introduce tools and technology to support customers, including facial recognition technology and simple transfers of direct debits and payment details from existing bank accounts to a Volt Bank transaction account.

Volt has also created a space called Volt Labs, a “co-creation community” where people can help test future product features.

The licence makes Volt Bank the first retail challenger bank since the early 2000s and the first digital start-up bank to receive an ADI licence.

Extending his congratulations to Volt, 86 400 CEO Robert Bell said, “It’s an exciting time in Australia and the start of a new era in banking. Australians deserve alternatives to the big four banks, and having new entrants such as 86 400 and Volt is positive.”

Following its June launch, 86 400 is expected to receive its full licence in the near future.

OPEN BANKING IN KEY MARKETS Source: Accenture 2017/8

Consumers willing to share their banking data with third parties Yes

No

30%

31%

Australia 70%

10

www.brokernews.com.au

UK 69%

49%

Hong Kong

51%

WA BANK BACKS DIGITAL INNOVATION largest locally owned and managed bank, P&N Bank, has partnered with Simpology to provide a new e-lodgement tool, Loanapp, which gives its 1,700 accredited brokers access to the information needed for client meetings and mortgage submissions. The bank’s head of broker and business development, Daniel Woods, said, “The great thing is that it enables us to upload our policies, rules and other requirements in real time, and that’s of benefit to our brokers.”

WA’S

www.brokernews.com.au

11

NEWS

R E G U L AT O R S 30/06/2003

STATE OF THE STATES - JAN 2019 Source: CommSec

8 6 7

5 1 1 3 4

1 Victoria

+ Job market – Equipment investment

Victoria ranks first on four of the eight economic indicators

1 New South Wales + Retail trade – Housing finance

NSW is consistently strong across the eight economic indicators

3 Australian Capital Territory + Housing finance – Equipment investment

The ACT retains third spot in the performance rankings and is topranked on relative housing finance

ROYAL COMMISSION: NEW WATCHDOG TO OVERSEE REGULATORS Treasurer Josh Frydenberg confirms APRA and ASIC to be overseen by a three-person watchdog

and APRA are to be overseen by a third entity, in line with recommendations set out in the royal commission’s final report.

The announcement was made

by Treasurer Josh Frydenberg on 4 February following the public release of Commissioner Hayne’s recommendations. While the regulators were called upon to bring charges against 24 finance and insurance firms, they themselves will be subject to added scrutiny from an independent entity.

“The authority should be comprised of three part-time members and staffed by a permanent secretariat,” Hayne said.

It should also be independent of government and obliged to report on its activities “at least biennially”.

ASIC

4 Tasmania

+ Population growth – Economic growth

Tasmania is ranked first on relative population growth and business investment

5 South Australia

+ Equipment investment – Population growth

South Australia is third-ranked on business investment and overall construction work done. But SA is sixth on three indicators

6 Queensland

+ Dwelling starts – Job market

Queensland retains sixth spot. The key area of strength is new dwelling starts (third-ranked)

7 Western Australia

+ Equipment spending – Job market

Western Australia is seventh or eighth on all indicators except equipment spending

8 Northern Territory

+ Economic growth – Population growth

The Northern Territory is third-ranked on economic growth but it lags all other states and territories on six indicators

12

www.brokernews.com.au

Both regulators faced mounting questions as the commission uncovered a series of incidents in which they had either failed to act or were deemed too close to those they were supposed to regulate.

In a press release distributed shortly after Frydenberg’s address, ASIC said, “The royal commission report identified ASIC’s enforcement culture as the focus of change needed at ASIC. This focus accords with ASIC’s change agenda, that has included the adoption of our ‘why not litigate?’ enforcement stance, the initiation of our Internal Enforcement Review and the enhancement of our governance structures.…

Consideration of these matters will be prioritised.”

Meanwhile, APRA chair Wayne Byres said in a statement, “The commission has identified a number of areas where APRA’s prudential and supervisory framework can and should be strengthened. Many of these improvements are already in train and APRA is committed to delivering on them. APRA appreciates the commission’s acknowledgment that increasing the intensity of supervision will require additional resources.

“Although the Commission has assigned some important new responsibilities to APRA, our primary responsibility remains the safety and stability of the financial system, to protect the financial wellbeing of the Australian community. APRA is the only regulator with a primary focus on ensuring the safety and soundness of the financial system.”

In its final report, the royal commission made a total of 76 recommendations, covering broker remuneration. For more on this story turn to page 16.

WARNING ISSUED OVER INCREASED REGULATION

LABOR PLEDGES MORE POWER FOR APRA TO CLOSE SUPER FUNDS

long-term effects of increasingly stringent banking regulations need to be considered, according to the head of client advisory at Sydney fintech Avoka. Speaking to Australian Broker, Christopher Wooldridge said, “It’s a delicate balance and an important responsibility for regulators, who must ensure that changes are thought through with as much consideration of the effect on present and future business as the risks involved in not making changes at all.”

superannuation funds in industry and retail could be forced to close under new proposals made by Shadow Treasurer Chris Bowen.

If successful in the election, Bowen says a Labor government would grant stronger powers to APRA to carry out this work.

In a statement released last month, Bowen said, “We want members to get a good deal, regardless of whether they’re in an industry, corporate, or retail super fund.”

THE

UNDERPERFORMING

www.brokernews.com.au

13

FE AT URES

SPECIAL REPORT

BALANCING THE BOOKS FOR SMES

Supporting SMEs and bringing transparency to fintech lending is no easy job, but it’s all in a year’s work for OnDeck.

Global CEO Noah Breslow explains

KEY BUSINESS METRICS

80,000

customers served by OnDeck in the US, Canada and Australia

US$9bn

loaned to SMEs in these markets over 10 years

$75M

asset-backed Credit Suisse facility secured by OnDeck Australia

7

signatories of the Code of Lending Practice

37%

annual growth rate of SME lending market in Australia

14

www.brokernews.com.au

no shortage of facts and figures on the Australian SME sector. With more than two million active enterprises nationwide, the sector employs 44% of Australia’s private, non-finance workforce and contributes 57% of total GDP. However, while some statistics are astonishing, others are simply alarming. For example, 60% of the country’s SMEs fold within three years of launch. The primary reason? Cash flow.

Although profit is a fundamental goal in running a business, the majority of SME owners and directors who work for themselves are motivated more by a desire to pursue a passion than by money.

The result is that, when they need additional lines of funding, they are vulnerable to making choices that could undermine future profitability, for example by using high-interest credit cards to make ends meet.

When sourcing finance, research

by OnDeck shows that SMEs are traditionally reliant on mainstream banks (63%), specialist financiers (29%), credit unions (27%) or family and friends (27%).

While these choices have expanded over recent years as Australia’s fintech lenders have gained prominence, a lack of transparency and regulation around the products offered by some non-bank lenders has undermined the reputation of the sector.

Now, OnDeck Australia is on a mission to reverse that trend while bringing simplicity and transparency to the online SME lending space through a THERE’S

new, tried and tested tool.

The SMART Box – which stands for Straightforward Metrics Around Rate and Total cost – presents business borrowers with the loan amount, disbursement amount and total repayment amount, as well as the terms of their loan, expressed in months.

Definitions of various loan features are also standardised across participating lenders.

Devised by the Innovative Lending Platform Association (ILPA) for use in the US and Canada, the Box has been utilised

APR and total interest, meaning business owners can easily compare competing unsecured loan options on an apples-to-apples basis.”

As a leading force in the cohort of COLP signatories – and a founding member of ILPA – OnDeck Australia is both an architect and early pioneer of the SMART Box. “The transparency created by SMART Box builds trust and confidence in the sector, as a strong alternative to the traditional banking offer. This is particularly important with a relatively new industry,” says Breslow.

Smart, responsible, informed There are many reasons why SMEs seek finance, from new equipment requirements to new staff. For brokers considering the options available to their clients, there are two common themes to consider: growth and challenges.

“The SMART Box provides a level of transparency for business borrowers in Australia that is not currently offered by traditional lenders”

by SMEs since October 2016 and debuted in Australia on 1 January this year. Its introduction is one of a series of developments outlined in the Australian Finance Industry Association’s Code of Lending Practice (COLP), designed specifically for fintechs and signed by seven of the most prominent, including OnDeck Australia, in July last year.

“The SMART Box provides a level of transparency for business borrowers in Australia that is not currently offered by traditional lenders,” says OnDeck’s global CEO, Noah Breslow.

“The cost of the loan is expressed using different metrics, such as

“The first reason to seek funding is when a business is looking to grow and expand, for example when looking to purchase additional stock, renovate a space or engage in additional marketing. The second is when a business faces an unexpected challenge that requires funding to solve, for example when a machine breaks or there is an unforeseen environmental event,” Breslow says.

Unlike mainstream bank lending, the online SME finance sector is largely unregulated – but that hasn’t hindered its growth.

OnDeck’s research shows that the SME lending market in Australia

In partnership with

that of the businesses it serves.

“Long processing times prevent SMEs from taking advantage of near-term growth opportunities and being agile in their day-to-day operations,” says Breslow.

“Online lenders solve this challenge by providing smart, efficient application, underwriting and funding processes that can deliver funds to SME owners in as little as 24 hours. We can move at the speed of their businesses.”

Noah Breslow, CEO, OnDeck

is growing at a faster rate than the US market did at a similar stage of development: 37% annually to be precise.

This is due in part to the changing dynamics of the credit landscape.

As the banks have stepped back from business lending, the fintechs have stepped up to meet growing demand, wooing businesses with the ability to provide ‘instant’ approvals, low-doc applications and competitive rates. In fact, Australia has overtaken Japan to become the second-largest alternative finance player in the Asia-Pacific region, right behind China.

“Internet and mobile-based lending platforms are transforming

how small businesses access and secure financial services by increasing efficiencies, decreasing transaction costs, improving customer experiences and promoting greater financial inclusion,” says Breslow.

“Through technology, automation and data analytics, OnDeck can underwrite and fund a small business customer more efficiently than traditional banks.”

While many fintech lenders meet their promises, some have made the terms and conditions around their loan features deliberately opaque, damaging the sector’s reputation as a result.

The idea behind SMART Box is

to provide an “exceptional level of transparency” for SMEs looking for funding, thus helping business owners make informed choices regarding their options.

“Transparency builds confidence and trust in the sector. It provides a level playing field for small business owners to compare alternative offers from competing providers; and, along with awareness and credibility, transparency is a key pillar of a well-governed and responsible fintech sector,” says Breslow.

The SMART Box is a simple solution to a complex problem.

Crucially, it keeps credit moving at a pace that matches

Leading by example For OnDeck the SMART Box is just one recent milestone. Last year the lender marked 10 years of global operations, during which it has loaned more than US$9bn to more than 80,000 SMEs in the US, Canada and Australia.

In July, OnDeck Australia secured a new asset-backed revolving credit facility worth $75m from Credit Suisse, and in October it announced the addition of a secured equipment finance product for loans between $10,000 and $100,000, with repayments between 24 to 48 months.

As Breslow hints, there’s plenty more to come.

“There is no doubt the Australian market will continue to mature in the coming years. I’ve been fortunate to visit Australia since launching OnDeck here, and on each visit I can see the progress the industry is making,” he says.

“One example is that both the Code of Lending Practice and SMART Box were agreed and implemented within a 12-month timeframe in Australia, and at a much earlier stage in the industry’s life cycle than what we experienced in the US.” While the banks’ lending criteria, the royal commission and a host of other political and economic factors continue to shift the market dynamic, the role of online SME lenders is growing by the day, and, as Breslow predicts, it’s a trend that’s here to stay. AB www.brokernews.com.au

15

FE AT URES

NE WS ANALYSIS

PREPARING FOR 2020 While the big banks escaped largely unscathed, Commissioner Hayne’s final report raised huge questions about the future of broking. As the industry prepares for a potential 50% pay cut, Australian Broker examines where future opportunities could lie the 76 recommendations set out in Commissioner Hayne’s final report, the proposal that brokers should take a 50% pay cut from next year was the one that sparked outrage.

While many were braced for change, few fully expected the sweeping recommendations Hayne included in his three-part report.

Nonetheless, the industry was ready to stand up for itself.

In the hours following the news, associations, aggregators and brokers alike were out in force, defending the third party channel and reminding Australia of its worth.

“I thought I was reading a CBA submission to the royal commission to be honest,” says Loan Market executive chairman Sam White.

“I was disappointed that the commission made such sweeping recommendations and apparently they didn’t even talk with a mortgage broker.”

Shore Financial CEO Theo Chambers says, “These changes could wipe out the broking industry.

Brokers are the voice of many second-tier lenders and smaller financial institutions, so the consumer has probably lost out in all this. It isn’t a recommendation that helps consumer choice.

“In my opinion the whole royal commission has been more in favour of the banks,” he adds.

They aren’t alone in their observations. MFAA CEO Mike Felton labelled the ban on trail a “tax on borrowing”.

In a statement released shortly after the announcement, he said, “These policy recommendations are effectively a new multi-thousand-dollar tax on borrowing. They will put the broker OF

16

www.brokernews.com.au

channel at severe risk, damaging competition and access to credit, and [they will] entrench bank power.”

Talk soon turned to exactly how broker businesses would survive and the various outcomes that could occur.

could compensate for this loss, he also warns that changes to broker remuneration threaten to create an uneven playing field.

“This is not a little bit of tinkering at the edges. What we are talking

“In Australia the model changed because the banks wanted to defer the outlay and match it up with their own revenue stream” Ray Hair, executive director, The Local Loan Company “Trail is approximately 50% of income, so if the trail in itself goes and there are no other changes to upfront, that’s a 50% drop in income,” says Trail Homes head and founder Nick Young.

While he says an increase in upfront

about here is a destruction of the way that 60% of people today get a home loan. It’s undemocratic and it’s un-Australian. I’m still scratching my head as to the systemic issue this is trying to address,” Young says.

His view is one that extends well beyond the broking community.

“This is what the broker industry was fearing,” says Heather Baister, partner at Deloitte’s assurance and advisory financial services practice.

MARKET RESPONSE The treasurer’s decision to hold the report over the weekend paid off on the ASX ASX Feb 4, 4pm

CBA

ASX Feb 5, 4pm

NAB $24.03 $24.97

ANZ

$70.47

$25.23

$73.60

$26.86

Westpac

AMP

$24.88

$2.22

$26.70

$2.43

BROKER MARKET SHARE Source: Comparator

Q1 2018

59.1%

“You now have brokers being held to a different standard than bank branch staff. A broker, much like a financial planner, will now be held to a best interest standard. However, if you went into a major bank, that lender is only obligated to ensure that a loan is not unsuitable.”

The road ahead Australia isn’t the first to implement a ban on trail commission. During the GFC New Zealand also adjusted its remuneration structures to remove trail; however, there the move was compensated for with an increase to upfront commissions, and today there is talk of reverting to the upfrontplus-trail model once again.

Young says, “To me, the return to trail in New Zealand is a sign that a natural market will want to settle on an upfront and trail model. That is also true in the mortgage broking industry in a democratic country like Australia.”

For Baister, however, an assessment of international models

could still hold the key.

During the commission’s 68 days of public hearings the fee-for-service models employed in the UK and the Netherlands were regularly referenced.

Yet Baister says neither model provides a “perfect working scenario”.

financial offset,” she says.

In Australia trail was introduced almost 20 years ago as a way for the banks to lower the burden of upfront commission payments and, ultimately, defer the cost of origination.

“In Australia the model changed

“Brokers are the voice of many second-tier lenders and smaller financial institutions, so the consumer has probably lost out in all this” Theo Chambers, CEO, Shore Financial “The UK has a fee-for-service model, but there are concerns there about the extent of churn.

The products there are more vanilla and more comparable lender to lender. In the Netherlands, the fee is tax deductible, so although it is paid by the borrower there is a

Q1 2017

55.7%

Q1 2016

53.6%

because the banks wanted to defer the outlay and match it up with their own revenue stream. Now, for the banks to decide they have collective memory loss and throw brokers under the bus is the biggest disappointment,” says Ray Hair, executive director of The Local Loan Company. www.brokernews.com.au

17

FE AT URES

TOP COMMENTS FROM BROKERNEWS.COM.AU Big business wins – no surprises here. Australian borrowers lose Moofie on 04/02/19 at 4:40PM

Hayne, you're either a puppet or an imbecile, or both. You've just signed off on screwing our whole country. Because you've got one foot in the grave, you won’t live long enough to see the true fallout.

Congratulations a**wipe!

Anon on 04/02/19 at 4:45PM

Hope the common sense will prevail. Aggregators now please stand up and fight for the industry to defeat ignorance!

BerwickBroker on 04/02/19 at 04:47 PM

Totally expected after listening to the bias displayed by Hayne and counsels assisting during the last round of hearings. We now need to get really active in lobbying MPs and senators so that they are in no doubt as to the consequences of these recommendations. Contraction of competition, marginalisation of smaller lenders and increase in interest rates as the big banks claw back margin to what it was before brokers.

Great result, Hayne, Orr and co.

David on 04/02/19 at 4:48PM

This is the worst news for the Australian economy.

Sell your houses. Sell everything. The credit crunch hasn't even started yet.

20 years broking on 04/02/19 at 4:48PM

The royal commission into banking misconduct has basically screwed the customer even more than they were prior to the commission. So, in a nutshell, the Big 4 congratulations, mortgage brokers start looking for new streams of revenue, and borrowers welcome back to 1980s.

“Trail was nothing to do with ongoing customer service. The major disappointment is the abolition of trail without any real understanding of its history.”

For many, trail covers essential overheads such as staff, and huge questions remain around how such essentials will be covered in future.

Mortgage Choice owner-manager Deslie Taylor employs six staff, with one specifically dedicated to client relationships.

She says, “Mortgage brokers help the economy in so many ways through hiring staff, giving back to the

subsequent three years, will bring – and it may not all be bad.

“Our argument is that, as long as the net present value of the commission remains the same, brokers can continue to invest in their business and service levels. If that is cut then the concern we have is that broker income drops, which means service drops, compliance drops, and that’s a real concern,” says White.

With net income still hanging in the balance, multiple revenue streams are becoming even more important.

“Take care of your business today.

Look after your customer. If you get

Another Angry Broker on 04/02/19 at 4:53PM

Didn't think I would see a return to 18% interest rates in my time again. Hayne just shattered that notion.

Bankrupt Broker on 04/02/19 at 5:13PM

This is now our value proposition: Pay me a $2,000 fee and I will find you the best deal for you that will save you $10,000 over the term of your mortgage. All brokers should have a financial advisor licence and the good ones will be able to stay in the industry.

Philly Slim on 05/02/19 at 10:11AM

The banks will not be able to keep up without Brokers. They will have to employ staff and they don’t like doing that. Wait and see is all we can do.

Unhappy broker on 04/02/19 at 5:01PM

18

www.brokernews.com.au

“I thought I was reading a CBA submission to the royal commission to be honest” Sam White, executive chairman, Loan Market community. Without the trail, how do we stay in business and what will the future commission structure look like?

It’s a world of unknowns.”

New revenue streams Despite the unknowns, many are already looking ahead to what the next 15 months, and indeed

that right, the rest of your business will be solid. The second thing is to diversify: asset finance, commercial – there is a new urgency around that now,” says White.

“The third thing is to make sure your tech platform is awesome. Keep in touch with customers today to make sure that, as things change and move,

we can prove the contact points we have with customers.”

For its part, Loan Market is preparing to launch a weekly training program for brokers who are ready to make the leap into new areas of lending.

Supporting such measures could become commonplace for aggregators as they evolve to take on a new role in the industry – one that involves a greater focus on understanding the challenges brokers face and adopting a stronger business coach role, says White.

“Our role as an aggregator will be helping our brokers to adapt and grow in this environment.

We understand the frustrations and anxiety, but we also understand there are still ways to operate a great business without trail,” he adds.

For Hair, the focus moving forward will fall on efficiency, technology optimisation and many viability assessments. The most drastic outcome, he says, will be a complete repositioning of the business.

“As the borrower-fee model, as it’s being called, is fleshed out and we get a better idea of what it will look like, we then have to make an objective assessment of whether or not we will have a viable business. If it is viable,

what does it look like? Diversification will be key to that.

“We are already looking at how we provide a range of services to our customers, both existing and prospective,” he says.

There are plenty of areas to diversify into. From asset finance to commercial specialist, auto, business and personal lending, the opportunities are there for those who want to leverage them.

MFAA data shows that more brokers have started to diversify already. In the six months to March 2018 there was a 25% spike in the number of mortgage brokers also writing commercial loans, taking the total number of brokers to just under 3,700. Combined, they wrote close to $9bn in commercial loans during that period.

“There is going to be a lot of change, and those who aren’t in a position to be nimble enough to adopt, evolve and embrace the change will struggle,” Chambers says.

And while the brokers go back to school, players from across the industry will continue to fight their corner.

FBAA executive director Peter White says the association has a “significant and unique initiative” planned with key influencers and senior ministers on both sides of government.

“We know the Liberals well, but there will be a strong focus on Labor, and it’s something that in my time in the industry I haven’t seen done in the past. It’s a significant initiative with regard to those interactions and to make sure our message is clearly understood,” he says.

Meanwhile, the MFAA is extending its ‘Your Broker Behind You’ drive through a new multimedia campaign launched in the days following Hayne’s final report.

However, the focus for now should be business as usual.

As Hair says, “There is still an opportunity. It’s not over; we have to fight this, we have to be vocal, and we have to step up and produce the evidence to demonstrate that some form of workable remuneration model that maintains viability of a very important small business sector is critical.” AB

BAD BEHAVIOUR With 24 recommendations for criminal charges, Hayne pulled no punches. But Australia isn’t the first country to come down hard on its financial institutions. When the GFC hit, many governments issued penalties – and even criminal charges – to regain public trust.

UK

US

To date, British authorities have brought charges against 28 people, with convictions secured against five and a trial against Barclays due this year. In 2012 former Royal Bank of Scotland boss Fred Goodwin – aka Fred the Shred – was stripped of his 2004 knighthood, and in 2013 former HBOS boss James Crosby requested that his be removed.

When the great depression hit, the head of the NYSX was sent to prison, and, in the 1980s, 1,100 executives of failed banks were prosecuted. Following the GFC, Bank of America was fined US$17bn and more than 300 real estate agents, mortgage lenders and developers faced charges. However, no Wall Street CEOs were ever prosecuted.

Iceland

Ireland

Iceland literally placed those found guilty of contributing to the country’s financial crisis between a rock and a hard place. Serving their sentences at Kviabryggja Prison, 26 Icelandic bankers were sent to the low-security facility locked between a volcano and the sea, with some serving more than five years.

Four bankers were sentenced to a total of more than 14 years for their roles in the country’s financial crisis. The most recent conviction was brought only last year.

Their actions were called “deceitful and corrupt”.

The crisis was triggered by the property sector and in 2009, the economy entered a depression.

www.brokernews.com.au

19

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

Hype Financial director Luke Cieslak recalls how an intense nine-month action plan helped his clients reverse years of bad advice in order to boost their financial fitness, retain the family home and save $30,000

THE FACTS

Loan size and term $900,000 for 30 years

Client Couple in their early 40s

Goal Simplicity, savings, sanity

Location Bayside, Melbourne

20

www.brokernews.com.au

Aggregator Connective

– unbeknown to him – had a default judgment listed against him.

On the plus side, they both had a strong and consistent income history and I trusted that they were invested in turning things around.

Although they already knew, I made it clear from the outset that there was no quick fix. Instead it would take at least six months of intense work to get them financially fit for a mortgage.

THE SCENARIO

A lot can change in six to 12 months.

You can train for a marathon, learn a new language or even write a book. But when faced with mounting financial issues, six to 12 months can feel like a lifetime.

As brokers, we see impossible situations every day, but there are still some cases that resonate more than others.

In January 2018 I received a phone call from a couple who were in a fragile state of mind and seriously considering selling their family home. The voice on the end of the line was stressed, exhausted and frustrated: “Our friend said I need to speak to you”.

The clients were a couple in their 40s with a young family. Despite their ambitious, high-earning careers, they were the victims of poor loan structure, too many personal debts and a barrage of broken promises from countless bankers and brokers. It was clear to a professional that the solution they were considering would have major consequences for their long-term financial future.

There were several immediate concerns: the male applicant was self-employed and did not have up-to-date financials; further, lodging his income tax return would trigger a bill from the ATO. Meanwhile, the female applicant was planning to move from self-employment to PAYG; their home loan home was interest-only; and their account conduct was inconsistent across their personal loans.

A further look at their credit ratings also revealed that the male applicant

Lender Liberty Financial

THE SOLUTION

The solution hinged on the female applicant securing full-time employment, which she did by mid-2018, landing a high-powered job as an executive manager at a global

Although they were in a much stronger position, the clients still required a specialist solution, so I contacted Matt Hall from Liberty Financial, who workshopped a deal with their credit team.

At sub-70%, LVR was not a problem.

Servicing could be satisfied by using the most recent financial year’s business profits from the male applicant and the probationary PAYG income of the female applicant. Repayments on the remaining personal debts with other financial institutions were also factored in.

Leveraging Liberty’s Custom Solution, we secured funds to refinance the home loan to principal and interest, refinance most of the personal debts and pay out the ATO debt. The solution would save $30,000 over the next three years, net of Liberty’s upfront fees.

The loan settled in October and the results were transformative.

THE TAKEAWAY

The biggest relief for the clients was that they were quite literally liberated from the trappings of their situation – a problem that had grown to become a source of untold stress and mental anguish.

They no longer had to sell their home, their ATO commitments were up to date, and they had surplus cash, making overall financial management simpler. With good conduct, in six months’ time they would be eligible to switch to Liberty Financial’s prime product, saving even more money.

It has been proven time and again that financial health and mental health are intrinsically linked. This case only highlighted that.

As mortgage brokers it’s important that we offer genuine care, so I am passionate about supporting clients to achieve better outcomes. For these clients, their previous experience had seen them let down, despite

It has been proven time and again that financial health and mental health are intrinsically linked. This case only highlighted that

Luke Cieslak Director, Hype Financial

communications company. With this came a new level of income security, which allowed the male applicant to engage an accountant to complete his 2017 business and personal financials. Next was the issue of tackling the default judgment, and once paid in full, account conduct became less erratic. By September, we were able to lodge an application.

a series of upfront promises in which they became heavily invested. Education and patience helped them turn a corner, but we all knew that time would be the real key.

Although the whole process took nine months, deals like this demonstrate how, with the right expertise and support, brokers can provide enormous value and far superior service to the banks. AB

www.brokernews.com.au

21

FE AT URES

OPINION

THE EVOLUTION OF THE GOOD BORROWER

As the profile of a ‘good borrower’ continues to change, Peter Ellis, founder and borrower advocate at Lending Mate, explains how brokers should embrace specialist lending to prevent clients from being judged on their past

I started in the mortgage and finance industry 11 years ago, I’ve noticed there has been a keen focus on helping ‘good borrowers’ – the prime clients. If there was any ‘challenging credit history’ in an application, the would-be borrower may have been told that they could not be assisted.

I must admit that earlier in my career I, too, was focused on assisting prime clients, often advising those that didn’t fit that they would not be assisted.

When I went out on my own in 2012 I spent a considerable time learning about the specialist side of lending and what the ins and outs were. Ever since then I have embraced specialist lending with open arms, and to this day I still enjoy it with a passion.

Why? Once we truly understood what could be done and why specialist lenders existed, it showed us that there was no such thing as a simple deal – many factors had to be considered. If a customer presents with a difficult or unusual set of circumstances, we believe they should not be treated any differently.

The old saying “Don’t judge a book by its cover” needs to be applied more widely in finance circles, which is why we have always focused on those lenders with assessment policies that consider the whole of the applicant and not just the interest rate, or what the computer or credit file says.

To us the interest rate means nothing if the borrower doesn’t meet the lender’s policy in order to obtain that rate. If we have clients looking for the lowest rate, we tell them that until we receive all their application documents we cannot advise on what is possible.

Scalable enquiry is needed, not a simple yes or no.

With artificial intelligence and a new

generation of credit-scoring tools becoming part of everyday finance, there is the possible risk that the human element of finance and talking to the individual may become less relevant.

You cannot understand what you don’t experience, and a computer is not able to read a client’s past like a broker can.

We routinely see clients who come to us after being declined elsewhere. There are plenty more fish in the sea, so we use second-tier and non-conforming lenders who have different policy requirements and may be able to assist customers with different needs and challenging credit histories.

We work with these clients long term,

SINCE

22

www.brokernews.com.au

cannot be learned overnight.

Knowing the rules gives you a framework; understanding them gives you knowledge of the wider issues and nuances that must be considered.

Brokers therefore need to enhance their comprehension of such things as the NCCP rules and make them applicable at a practical level. Further, they need to collaborate more closely with BDMs in order to communicate their clients’ needs and history.

The last time I remember seeing the market behave in this way was during the GFC. Lenders’ rules became tighter and things got a bit hairy, as they say. I had been in finance for only one year at

Knowing the rules gives you a framework; understanding them gives you knowledge of the wider issues and nuances that must be considered

Peter Ellis Founder and borrower advocate at Lending Mate

and if their position changes we look to assist them in other ways.

So far, so simple – or is it?

Having worked in this area of lending for many years, we see that the vast majority of rejected applicants are not advised to consider the other options available to them.

However, now that the market is changing, those clients who have been told no – or have not even been considered previously – may have a chance of obtaining the help they need.

That said, a massive learning curve for brokers lies ahead. The level of questioning, knowledge and understanding required to broker a specialist loan is huge, and new skills

that point, and I didn’t have the knowledge that I do today. But with the benefits of hindsight, the path through our current situation is much clearer.

We all need to pull together, stay abreast of regulatory changes, continue to research products, and keep ahead of policies so we can write loans for all types of clients.

With the right upfront checks and balances in place, the only thing that should stop a loan from being approved is unforeseen circumstances, and with the right diversified suite of lenders there should be no reason why a client cannot be given the chance to see what is possible within their current financial situation. AB

www.brokernews.com.au

23

PEOPLE

CAUGHT ON CAMERA FAST held its inaugural Professional Development Convention in December, under the theme ‘Ahead of the curve’. Taking place over two days, the speaker line-up featured former Victorian Premier Jeff Kennett AC; former UN peacekeeper Matina Jewell; executive GM of NAB broker partnerships Anthony Waldron; and NAB GM for performance and operations Nicole Devine. The program was designed to provide brokers with insights on the latest market trends, tools and business updates to deliver good customer outcomes. “We applaud brokers who invest time and resources to learn more about the latest industry trends and themes so they can make a real difference to clients in a sustainable way,” said FAST CEO Brendan Wright.

24

www.brokernews.com.au

THE CHOICE IS YOURS

FEBRUARY 2019 ISSUE 16.02

Preparing for 2020 Hayne’s full recommendations and what they mean for brokers /16

Evolution of the ‘good’ borrower How and why specialist lending can help brokers /22

NOAH BRESLOW OnDeck’s global CEO explains how the online lender is boosting transparency in fintech /14

Caught on camera All the action from FAST’s inaugural PD day /24

ALSO IN THIS ISSUE… A big deal How one broker transformed his clients into prime borrowers /20 Housing market data The challenging dynamics driving performance in the NT /26 In the hot seat Advice for career success from the director of Lend Wright /30

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

ENEWSLETTER Daily news service delivered straight to your inbox every morning

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

25

DATA

VICTORIA

NT SPOTLIGHT

Melbourne’s recovery pushes interest to the suburbs Beyond Melbourne’s metro area, other regions of Victoria are enjoying the spillover effect of a market recovery as demand flows to more affordable areas. Geelong continues to capture interest given its affordability and the convenience of travel to the Melbourne CBD. “A country train takes just 45 minutes to the Melbourne CBD from the suburb of Corio – this commute is much quicker than that from many Melbourne suburbs,” says Research Property Real Estate’s property research and acquisitions coordinator, Henry Fields. “[You] could buy a $600,000 one-bedroom unit in Bentleigh East and take a 35-minute train to the city, or a three-bedroom house on a large block in Corio, just 45 minutes from the city and by the beach. Geelong is the fifth-biggest regional city in the nation – its importance as a real estate market should not be underestimated.”

Area

Type Median value

Quarterly

12-month

growth

growth

Melbourne

H

$702,000

-7.3%

5.6%

VIC Country

H

$350,000

-2.8%

6.3%

Melbourne

U

$520,000

-3.0%

3.1%

VIC Country

U

$255,000

-5.6%

0.7%

NEW SOUTH WALES

Sydney’s downturn continues but investment prospects remain Although their residential markets are struggling, there’s a lot happening in Sydney and NSW that will appeal to investors. For instance, an infrastructure project is underway to repurpose the abandoned tunnels and platforms at Sydney's St James Station, as per CoreLogic’s Cordell Construction Monthly report for November 2018.

Wollongong is also on the path to becoming a commercial hotspot following several years of investment. Knight Frank’s Wollongong Insight report indicated that the region’s vacancy rate in 2018 was the lowest in five years.

“The prime vacancy rate recorded 3.4% in January 2018, down from 8.5% two years earlier, reflecting recent demand for higher quality buildings across Wollongong,” says Paul Savitz, director of research and consulting at Knight Frank.

“The rise of the shared services sector is also ... a significant user of office space across Wollongong, given the higher staff retention rates, lower salaries and lower leasing costs compared with Sydney.”

Area

Type Median value

Quarterly

12-month

growth

growth

MIXED FORTUNES

Although sales are up, median house prices declined in the last quarter, meaning 2019 could be a year of mixed fortunes for the troubled Northern Territory

made their presence felt in Darwin as 2018 came to a close, with sales in the house market increasing 1.5% over the September 2018 quarter compared to the previous quarter, according to the Real Estate Local Market report published by the Real Estate Institute of NT (REINT).

While this could be a sign of what lies ahead in 2019, the performance of the rest of the market shows that Darwin is not yet ready to recover from its long downswing. In fact, for the first time since 2009, Darwin’s median house price has slipped below $500,000.

“The figures for quarter three don't fill us with any glee – Alice Springs saw house sales slow this quarter, falling by a sizeable 16.5%.

Unit sales in Darwin also did not fare well this quarter, with sales volumes falling 32.2% lower than in 2017,” reports Quentin Kilian, CEO of REINT. The rental market is on the wrong track as well. House rents took a significant nosedive to $372 per week, pushing yields in this market down to 3.9%. Meanwhile, weekly unit rents dipped to $351.

Not all the news is bad for Darwin, however.

Palmerston, for instance, recorded a median house price of $450,000 in the September 2018 quarter following 5.9% growth. Units saw an upswing as well, with sales increasing by 14.3%. In Alice Springs, there was also a 30% boost in unit sales compared to 2017.

Herron Todd White’s Month in Review report for November 2018 highlights Darwin City as an excellent spot for retirees, given the concentration of unit complexes in the area. Within the inner city, Parap and Ludmilla are well-located suburbs with access to the marina. AB BUYERS

H

$910,000

-7.1%

-1.5%

Median price (houses)

NSW Country

H

$465,000

-2.1%

4.4%

$407,858

Sydney

U

$700,000

-2.8%

-1.4%

NSW Country

U

$405,500

2.7%

0.0%

www.brokernews.com.au

First home buyers are seeking out quality properties in Darwin’s affordable market A number of indicators are pointing towards a steadying market. I’m seeing first home buyers re-emerging as home ownership becomes more affordable. My customers who have invested anywhere other than Darwin are now buying their own homes as prices become more competitive, which is great for maintaining and growing the population.

Less expensive suburbs are becoming more popular, as buyers can pay under $300,000 for a threebedroom, one-bathroom house with a pool in these locations. Suburbs like Moulden, Driver, Woodroffe and Gray in the Palmerston area and Moil and Karama are great examples.

While ABS data shows the total number of financed homebuyers fell by 24% in the 12 months to October 2018, I attribute some of this slowdown to credit tightening rather than just a weakening real estate market. It is just taking that bit longer to get into the position of owning a home.

However, as the cost difference between buying and renting reduces, I believe we will see an increase in demand flow through to a growth market.

Janine Ashmore Franchisee, Aussie Darwin and Palmerston

SUBURB TO WATCH: SADADEEN

Sydney

26

BROKER PERSPECTIVE

Median price (units) $279,775

Source: CoreLogic

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

-0.4%

3.3%

0.2%

6.3%

12-month growth

3-year growth

5-year growth

Indicative gross rental yield

3.8%

3.6%

-12.3%

6.9%

AUSTRALIAN CAPITAL TERRITORY

Owner-occupiers and investors expected to drive demand OPPORTUNITIES AND KEY INFRASTRUCTURE

Investment

Strategy

Upgrades

Energy

NT is home to Japan’s largest overseas investment, the $54bn Ichthys LNG project

Community consultation on Darwin Area Plan will conclude 22 February

NT government has invited tenders for $77.8m Adelaide River Flood Plains upgrade

The $800m, 622km Northern Gas Pipeline officially opened in December

HIGHEST-YIELD SUBURBS IN NORTHERN TERRITORY Suburb

Type

Median price

Quarterly growth

12-month growth

Gray

U

$205,000

-14%

-26%

Katherine

H

$300,000

-2%

-6%

The Gap

U

$287,500

-1%

5%

Gillen

U

$307,500

1%

-5%

Larapinta

U

$287,500

-12%

7%

Canberra eliminated stamp duty on commercial transfers under $1.5m in July 2018, a measure that is expected to spur demand from both owneroccupiers and investors. The city is also upping its game in terms of infrastructure development, with plans being conceptualised for mixed-use developments. Bradley Street in the suburb of Phillip is also undergoing a major upgrade. The resulting dining precinct is expected to be a hub of cafes, restaurants and local art installations.

Alongside the lifting of stamp duty, however, is the imposition of significant land tax on residential properties. It is a sticking point that buyers should always take note of, especially since this tax has already driven interested parties to the NSW border.

“With any market, you need to be aware of state legislation with regard to ownership, Airbnb and some of the potential changes that will take place with that,” says Nerida Conisbee, chief economist at REA Group.

Area

Type Median value

Quarterly

12-month

growth

growth

Canberra

H

$687,875

0.2%

4.5%

Canberra

U

$448,500

3.9%

0.0%

www.brokernews.com.au

27

DATA

SOUTH AUSTRALIA

12-month

growth

growth

Adelaide

H

$465,000

1.1%

3.4%

SA Country

H

$290,000

0.8%

1.7%

Adelaide

U

$375,000

-2.3%

3.5%

SA Country

U

$160,000

-27.3%

0.0%

QUEENSLAND

MEDIAN HOUSE AND UNIT PRICES

Strong performance led by the southeast region

$1,000,000

Type Median value

Quarterly

12-month

growth

growth

Brisbane

H

$546,500

1.2%

2.9%

QLD Country

H

$430,000

0.0%

0.0%

Brisbane

U

$400,000

-2.4%

-1.7%

QLD Country

U

$381,000

-3.5%

0.9%

28

www.brokernews.com.au

Total auctions

1,423

Clearance rate

48.5%

PERTH Total auctions

499

Clearance rate

25.0%

Houses

$900,000

Units

Sydney Melbourne Brisbane Adelaide

Perth

Hobart

$511,000

$410,000

$350,000

$0

$390,000

$100,000

$473,000

$200,000

$305,000

$300,000

$425,000

$500,000 $400,000

$482,500

$600,000

$630,000

$700,000

$620,000

$800,000

$760,000

Southeast Queensland continues to be the location of choice for buyers looking to get a slice of the Sunshine State’s market.

“In Q3 2017, the Gold Coast scraped in with 139 surveyed sales, and 12 months later it has more than doubled, with 298 recorded,” says Clinton Ostwald, national director at Urbis. “For the smallest market of only 6,806 apartments in the pipeline, sales to owner-occupiers have been the highlight.”

In comparison, Brisbane struggles to improve its sales figures. However, its affordability as a capital city next to Sydney and Melbourne helps to secure demand.

“You can come into Queensland – be it Sunshine Coast, Brisbane or Gold Coast – and buy two brand-new houses for the same price as what you’d get for one run-down flat in Sydney.

That’s made purchasing and sell-through rates quite strong,” says Damien Lee, head of acquisitions at Caifu Property.

Area

ADELAIDE

Darwin

$399,725

Quarterly

$384,000

Type Median value

A newly released report focusing on Australia’s property auction performance found that combined capital city clearance rates dropped to just 43.6% in the three months to December 2018, down from 53.6% over the previous quarter and 62.3% over the same period a year prior.

The lowest weekly clearance rate for the quarter was recorded over the week ending 16 December (40% across 2,406 auctions), while the highest clearance rate was recorded over the week ending 7 October (49.5% across 1,817 auctions).

Individual capital cities saw a decline in clearance rates everywhere except Tasmania, which remained unchanged at 50%. The largest fall in clearance rates was seen across Canberra (down 13.4% from the previous quarter), followed by Adelaide (-12.2%), Perth (-11.9%) and Melbourne (-11.2%). Activity actually increased over the December quarter, with 25,894 homes taken to auction across the combined capital cities (up from 20,653 over the September quarter), but current volumes remain much lower than the same period last year, when 32,408 homes were taken to auction.

$523,750

Area

SEPTEMBER QUARTER, BY CAPITAL

$627,500

Adelaide’s economic prospects have come into question since the shutdown of the car manufacturing industry, but a recent report from Knight Frank suggests things are looking up.

“A lack of recent development completions has helped the vacancy rate turn the corner and begin to fall,” says Ben Burston, head of research and consulting at Knight Frank. “This coupled with an increase in demand driven by business expansions and new tenants in the defence, engineering and non-profit sectors has contributed to increasing rent, particularly in the prime market.”

This activity indicates rising investor interest, and the elimination of stamp duty on commercial properties is also attracting attention locally and interstate. “Reflecting increased investor confidence and improving leasing market conditions, [commercial property] yields across the CBD continue to firm,” Burston says.

With job opportunities increasing, Adelaide could see growth in its population and residential market.

CAPITAL CITY AUCTION CLEARANCE RATES

$327,500

Adelaide’s silver lining after auto industry collapse

Canberra

CAPITAL CITY HOME VALUE CHANGES Capital city

Weekly change

Monthly change

Year-to-date change

12-month change

Sydney

-0.3%

-1.2%

-1.2%

-9.5%

Melbourne

-0.4%

-1.5%

-1.5%

-8.2%

Brisbane

0.1%

-0.3%

-0.3%

-0.1%

Adelaide

0.1%

-0.3%

-0.3%

1.0%

Perth

0.0%

-0.8%

-0.8%

-5.3%

Combined 5 capitals

-0.2%

-1.1%

-1.1%

-7.1%

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

CANBERRA Total auctions Clearance rate

BRISBANE 1,090 46.9%

Total auctions Clearance rate

1,642 31.8%

SYDNEY Total auctions

8,828

Clearance rate

43.1%

TASMANIA

MELBOURNE Total auctions

12,372

Combined capitals

Clearance rate

45.4%

Clearance rate

TASMANIA

Area

Infrastructure and interstate migration set the pace for 2019 Tourism, education, agriculture and advanced manufacturing are going from strength to strength in Tasmania as mainland residents are drawn there by the promise of the state’s lifestyle, affordability and job market.

“The most recent ABS data shows Tasmania leading Australia in wage growth and being second to Victoria in retail trade,” says Simon Pressley, head of research at Propertyology. “Across the state, a range of new and upgraded tourism projects are indicative of Tasmania’s transformation.”

He cites airport expansions in Hobart and Launceston, and investment in universities, hospitals and hotels. For example, the University of Tasmania’s $50m student accommodation project in Hobart has received the go-ahead and will comprise 189 apartments. In Invermay, Launceston, a similar project is planned, and properties in the area are already selling like hotcakes.

50 40%

Type

Median value

Quarterly growth

12-month growth

Hobart

H

$440,000

-2.5%

13.5%

TAS Country

H

$286,500

-4.5%

7.4%

Hobart

U

$346,750

2.0%

11.0%

TAS Country

U

$240,000

-0.8%

0.8%

All data sourced from CoreLogic.com.au

www.brokernews.com.au

29

PEOPLE

Aggregator LoanKit

IN THE HOT SEAT Lend Wright director Michelle Milsom-Wright explains who inspired her to become a broker, and shares her professional – and personal – advice for a successful career

Who or what inspired you to become a broker?

When I bought my first home Aussie Home Loans had just A launched, and I met a lovely lady called Kathy, who was to be my broker. She conducted meetings out of hours to suit my schedule and, when she delivered the news that we had got the loan, that’s when I knew what I wanted to do in my working life.

Delivering such life-changing news is an amazing feeling. I have no regrets about that decision. The memory has not faded over time, and it keeps me motivated whenever challenges arise.

Q

What are your top survival tips for working in finance?

I personally believe a sense of humour is imperative.

A Without this we could easily take ourselves too seriously and cave under pressure. My clients enjoy the fact they are able to relax, while I remain professional throughout. Also, never underestimate the value of networking; it can deliver an abundance of business introductions.

Q

What is your business philosophy and what inspired it?

Loyalty is given; trust is earned. This is true in everyday life A also. We offer our loyalty to our clients, producing beneficial results for them. In turn they trust us with their personal and confidential information. My client base is mostly in the nonconforming market. This is challenging, but to me it is the most rewarding. Ours is not to judge where our clients are or have been; it is simply to work out a strategy to benefit them in their financial future. Clients need to feel comfortable and confident with me, enabling me to do my best work for them.

Q

What is one piece of advice you often give mentee brokers?

Listen, look, learn! Look for yourself in five years’ time.

A Don’t just jump in with the first person or group; find the person who most inspires you. Enjoy the experiences with your clients, and show gratification for the privilege of learning from those who have walked the walk. When you are involved for the right reasons, you will enjoy the journey. Finally, remember yourself. Find what you enjoy, learn to relax, and, importantly, invest in yourself by spending time enjoying you. AB

Q

30

www.brokernews.com.au

www.brokernews.com.au

31

32

www.brokernews.com.au