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ISSUE 7.19 October 2010

Conflict confusion spurs disclosure calls

St.George shake-up

Steven Heavey explains commission cut surprise

 Conflict of interest

Page 2

obligations face industry challenge

Brokers are at the mercy of an “excessive” conflict of interest clause under the new NCCP regime, which remains “a hard test to satisfy” and leaves brokers exposed to potential legal action from aggrieved consumers who suffer any financial disadvantage. Ray Hair, chief executive of PLAN Australia, said brokers should seek to protect themselves through disclosure and clear documentation of advice, though that “does not discharge their obligation, and still leaves them potentially exposed to subsequent action by the consumer”. Under NCCP, a broker is required to ensure a consumer is not disadvantaged at all by any conflict of interest on the part of the broker – a clause designed to protect consumers against entering into a credit contract that may result in financial hardship. However, Hair said the legislative burden is not fair and reasonable, provides no clear guidelines on what constitutes a conflict, and is tougher than the Financial Services Reform (FSR) regime governing financial advice. “To me it seems to be excessive – a hard test to satisfy.” Under FSR, potential conflicts are handled through disclosure, sufficient to allow the customer to assess conflicts and act accordingly.

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AMAs award success The best brokers, BDMs and service providers named and acclaimed Page 6

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Bank Basel blues Regulation raises credit crunch fears Page 18

Inside this issue

Ray Hair

CreditWise director Kate Keating said financial planners were “fortunate” they were able to manage conflict through disclosure. “The NCCP regime did not follow the same approach. It says starkly the conflict of interest must not exist if it leads to consumer disadvantage.” Hair has called for more clarity and guidance from the new credit regulator, and argues that a move toward a disclosure regime could ease the current conflict of interest burden. “I would prefer to see a

level of definition around what are potential conflicts and (possibly more importantly) what is generally not considered to be a conflict,” he said. “Perhaps some combination of guidelines from ASIC and disclosure requirements on the part of the broker would provide protection to the consumer and certainty or confidence to the broker.”

Viewpoint Deconstructing ASIC Insight Tiffen and Forsyth tips Market talk Population and property Toolkit Fixed rate fixation? People Higgins at the top... again Caught on camera

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22 24 26 28 30 32

Viva Las Vegas at the AMAs Insider

Page 20 cont.

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The broking ABC and D

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News St.George to shake up commissions St.George Bank is getting set for a wholesale shake-up of its broker commission structure as of 1 November. The bank has let key broking groups know it will release new upfront and trail commission structures designed to reward quality loans, conversion rates and longer loan life. The bank will no longer pay trail commission on the first year of a loan, and will pay brokers 0.15% in the second and third year, 0.2% in the fourth year, and 0.25% in the fifth year, with the 0.25% trail payment to continue for the life of the loan. Currently, the bank pays 0.2% for the life of a loan, excluding GST. Upfront payments will now be tiered according to individual broker conversion rates. St.George will offer a flat rate of 0.5% for any conversion rate under 70%, with the commission to increase to 0.6% for conversion rates between 70%-80%, 0.65% for conversion rates between 80%-90%, and 0.7% for any conversion rates that exceed 90%. The bank is currently paying a base upfront commission of 0.5%, with a bonus 10 basis points for brokers with conversion rates of over 70%. The changes are not retrospective, and will apply only to loans submitted from 1 November 2010. St. George general manager for intermediary distribution Steven Heavey explained that the restructure would reward loan quality and conversion rates, as well as loan longevity. Speaking with Australian Broker, Heavey said higher conversion rates would provide greater efficiencies for the bank, “an important aspect of the profitability of this channel”. He said increased loan life would increase the return on economic capital for the bank’s loans.

Steven Heavey

“What normally happens is that you get 16,000 mortgage brokers sending deals to banks and everyone gets paid the same rate when the deal settles,” Heavey said. “What we want to do through this structure is to reward brokers that send us good quality business that convert into settlements, and those customers stay on our books and we continue to reward the longevity of those customers by paying more to those brokers.” Heavey expects the removal of trail for the first year of new loans from 1 November will be “the most talked about” aspect of the bank’s

St. George commissions at a glance Upfront

0.5% (conversion rate under 70%) 0.6% (conversion rate 70% – 80%) 0.65% (conversion rate 80% - 90%) 0.7% (conversion rates above 90%)

Trail

Year 1: nil Year 2: 0.15% Year 3: 0.15% Year 4: 0.2% Year 5: 0.25% Life of loan: 0.25%

commission shake-up. However, he said trail will be linked to individual customers, so brokers won’t be shunted back on to a nil trail commission should customers look to top up their loan. “If a customer decides to get a top-up midway through their loan to build a pool, the clock doesn’t start ticking again.. The impacts will be for brokers who have poor conversion rates, so they’ll be on the lowest tier (upfront commission) and won’t be getting paid trail year one,” he said. However, Heavey said 30% of the bank’s brokers are at conversion ratios greater than 90%, so for those brokers, it will mean an increase in upfront commission, which will “more than offset” the loss of trail in year one. “So we expect to offset (any losses) through brokers who do understand our policies and processes and work with us and have good conversion rates, because there are not too many other lenders paying 70 basis points upfront,” he said. He added St. George’s conversion calculations were “generous”, based on sixmonths rather than 90 days. Heavey said aggregators will likely want to work with brokers more closely as a result of the upfront changes, now there is “money on the line” when it comes to improving conversion effectiveness. The measuring of broker conversion individually is also an important distinction. “All the feedback we get is that it would be far preferable for them to be measured on their own performance, than by a bunch of people who are measured as well just because they are a part of that same aggregation group.” Heavey finished off by saying “as the channel develops into the new world of regulation, a lot of brokers are looking at their own efficiencies, as we are. We want to work together with brokers in helping them improve the conversion rate – we’d much prefer to pay the higher rate,” he said.

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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

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Adelaide low-doc “about responsible lending” Adelaide Bank’s new approach to low-doc loans will aid responsible lending, says the bank’s manager for third-party lending. Damian Percy said that its new SmartDoc Plus product – which asks for an income statement from the borrower’s accountant rather than BAS – has been developed “as a response to [Adelaide Bank’s] view of what appropriate enquiries under the NCCP rules are”. He added that it was also intended to help brokers fulfil their obligations, rather than “struggling with BAS statements and so forth”. “We asked who, other than borrowers, is best-placed to form

a view about their current and future income,” said Percy. “We think it’s their accountant. It’s a good solution in terms of lending, and should give brokers extra comfort in terms of fulfilling their obligations.” Percy said that the verification statement has been developed in coordination with the National Institute of Accountants, and that safeguards have been put in place against fraudulent applications. “We – and in the management space, the mortgage managers – will treat the statement like a payslip,” he said. “We’ll independently verify that the accountant exists, as well as

MFAA to name preferred educators The MFAA is in the midst of a tender process that will identify and name the association’s preferred providers of mortgage broking education. The MFAA’s chief executive Phil Naylor has confirmed the association is

Phil Naylor

currently tendering for a list of preferred providers, following the body’s decision to raise minimum requirements for MFAA membership to Diploma status. “The purpose of the tender process is to identify education providers who will be able to deliver Diploma programs that meet the requirements we have set,” Naylor said. Currently, the association’s Certificate IV training is delivered through a relationship with TAFE in Sydney, however the wholesale review will see the association recommend a new list, which could still include TAFE. “We’re not anticipating it will be one [provider], but I don’t know how

speaking to the accountant and confirming that the facts on the statement are correct – just as we would with an employer.” SmartDoc Plus will also allow self-employed people to borrow up to 70% LVR without requiring lenders mortgage insurance. Percy also commented that its new 95% loan, launched in August, is “going well”, and defended it against accusations that it was irresponsible lending, by stressing that Adelaide ensured borrowers displayed a “good, strong savings history” as well as ensuring the borrower could service the loan comfortably. He also highlighted

that the priorities for the bank over the next few months would be a systems refresh and a rebranding project.

big the list will be,” Naylor said. “As soon as we’ve decided the list we’ll be announcing it to brokers, reminding them of the requirement to have Diploma status, and we’ll be saying here’s a list of preferred vendors you can achieve that status through.” Naylor said brokers who undertake a Diploma from an organisation not on the list could be required to undertake extra training to ensure “they reach the level other preferred vendors have been required to provide”. However, Naylor said this would not be a retrospective action, and the association would be “up-front” about its requirements for membership. The MFAA has been encouraging providers participating in the tender process to match their offer of educational services to the requirements of the association. “We can’t change both those

programs (Cert IV and Diploma) on the National Training Standard, so we can’t actually change the curriculum. What we are doing is encouraging them [providers] to include in their presentations scenarios and case studies that reflect the sort of requirements that we have,” Naylor said. The move would not affect the MFAA’s provision of education on professional development days or events with educational components, as the tender only takes in the body’s formal education requirements. All major industry training providers of Certificate IV and Diploma courses were invited to participate in the tender process. Providers of broking Diplomas include TAFE, Intellitrain, National Finance Institute, Kaplan Professional, AAMC Training Group and Traineeship Management Australia (TMA).

Damian Percy


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News AMAs recognise industry’s best The mortgage industry turned out in style to recognise its best brokers, BDMs and service providers at the Australian Mortgage Awards on 24 September, with Mortgage Choice broker Wendy Higgins taking home the coveted Australian Broker of the Year award. Higgins –who came out on top of MPA’s Top 100 Brokers list this year – was called on to accept two awards at the AMAs, also taking home the gong in the Broker of the Year – Franchise category. Higgins was not alone in gaining two awards. Greg Wells of Wells Partners in Sydney received back-to-back awards on the night as Broker of the Year in the SME/ Debtor Finance category, as well backing up for the Commercial Real Estate award. Meanwhile, the market twice recognised the work of Westpac business development manager Debbie Neal, who was named Best Bank BDM, as well as being recognised as 2010’s premier BDM, after she was called on to accept the Australian BDM of the Year Award.

Club Financial Services in Norwood, South Australia, won Best Brokerage of the Year (less than five staff), while Smartmove Home Loans was the best brokerage over five staff. Australia’s Rookie of the Year was taken home on the night by Cameron Wiles, also of Smartmove. Now in their ninth year, the AMAs are the highlight of the mortgage industry calendar, and celebrate the achievements of the best individuals and businesses. Held at The Westin in Sydney this year, the evening featured a gourmet three-course meal, free-flowing drinks, prizes and giveaways – including flights to Las Vegas – and plenty of fun. Following a Viva Las Vegas theme, attendees were treated to live entertainment from ‘Elvis’ throughout the night, as well as the fancy dress efforts of their colleagues. The event was attended by over 700 brokers and industry leaders. Were you at the AMA’s? Maybe your face was caught on camera. See p32–33 to find out.

Australia’s best brokers Young Gun of the Year – Franchise

Terry Azzopardi, Smartline

Young Gun of the Year – Independent

Cameron Wiles, Smartmove

Broker of the Year – Insurance

Irene Cujko, Mortgage Choice

Broker of the Year – Short Term Lending

Justin Goodwin, A Loan 4 U

Broker of the Year – SME/Debtor Finance

Greg Wells, Wells Partners

Broker of the Year – Commercial Real Estate

Greg Wells, Wells Partners

Broker of the Year – Non-conforming

Paul Mitchell, Beat Home Loans

Broker of the Year – Franchise

Wendy Higgins, Mortgage Choice

Broker of the Year – Independent

Jeff Falconer, Park First Home Loans

Australian Rookie of the Year

Cameron Wiles, Smartmove

Australian Broker of the Year

Wendy Higgins, Mortgage Choice

Existing clients provide rich pickings

Current mortgagors are more likely to use a mortgage broker than non-mortgagors, a report from research firm Datamonitor suggests. Fifty per cent of current mortgagors that are expecting to keep their mortgage for three years or less would use a mortgage broker if they decided to take out or refinance their mortgage, Datamonitor’s 2010 Australian Financial Services survey found. This compared to 45% of all other current mortgagors, and consumers without a mortgage, of whom only 34% would seek consultation with a third party broker. The report also found that these existing clients – upgraders and refinancers – are taking centre stage among lenders, as they continue to play a more active role in the market. Datamonitor’s AFS survey said refinancers would be a “challenge” for their current providers, as they were more likely to shop around for better deals with other lenders. Currently, only 48% of mortgagors expect to keep their mortgage with their current provider for 10 years or more – a decrease on the 55% of respondents who had this intention in 2009. Activity by upgraders, meanwhile, is expected to favour their incumbent lenders, although mortgage satisfaction levels and recent brand image and realignments in the market may

play a role for these borrowers in choosing a different lender for their loan. The general outlook presented by the AFS survey was positive, with Australians having “strong property purchasing intentions despite rising interest rates” – 8% intend to purchase an investment property in the next 12 months, while 7% plan to purchase their first home. “Consumer confidence in the Australian property market has rebounded after the tremulous last year”, according to Datamonitor’s financial services analyst Petter Ingemarsson, who said that the surprising strength in first homebuyer intentions is being driven by property price confidence. “The residential property market weathered the storm of the financial crisis without a major price correction, contributing to the current strong consumer confidence,” he said. However, the research group cautioned that while only a small number of people are expecting house prices to fall over the next year, an “eventual correction of prices” is likely. “Given that house price growth has outstripped wage growth significantly over the last decades, this would have to entail either a significant fall in property prices or a sustained period of stagnant property prices,” the report said.


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LoanKit opens up third licensing choice

Kym Rampal

Aggregator LoanKit is offering a third pathway for its brokers to become licensed under the new NCCP regime, that will see it manage the compliance responsibilities of independent Australian Credit Licence holders for the price of an annual fee. In addition to the standard credit representative and

self-managed licensee pathways being offered by the rest of the industry, LoanKit will offer the third option, which includes ACL-holder support such as documentation, technology and guidance. LoanKit head Kym Rampal said the new model will allow brokers to place deals outside of the aggregator’s specified lender panel, in addition to having the benefits of compliance support. Credit representatives would remain restricted to LoanKit’s panel lenders. As part of the deal, the aggregator has committed to creating and supplying the necessary compliance documents and registers to brokers, to assist with the ACL application process by the end of the year. This is as well as meeting its ongoing compliance with the new regulations. Under the model, Credit Assessment Reports (CAR) will be stored by LoanKit for seven years, and brokers will be given

their own branded website where customers can access their CAR. Other useful technology will allow the creation of CARs from within LoanKit software, and see any relevant data supplied by the customer for creating a CAR translated into an electronic lodgement format, where this is required or available at a selected lender. LoanKit has also said it will provide managed ACL holders with ongoing guidance, offer a Credit Ombudsman liaison if disputes arise, and provide compliance audit services at an additional cost. A statement released by the group argued its offering was the best in the market. “Some aggregators provide full compliance service and support but a restricted choice of panel lenders. Others allow a flexible choice of lenders but with the broker having to carry the burden of meeting all compliance obligations. Often, neither option is a good outcome for the broker,”

the statement said. Rampal said brokers “deserve to be able to tailor their business to its unique needs in light of national licensing while ensuring their contingency planning and monitoring is in the bag.” The third LoanKit-managed option for maintaining an ACL will cost brokers $330 per annum, which compares with the $880 required to become a credit representative per year under the aggregator. Self-managed licensees will bear the costs themselves.

LoanKit’s licensing options • LoanKit credit representative ($880 per annum) • Self-managed licensee ($0, broker pays ASIC fees) • LoanKit-managed licensee ($330 per annum)


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Liberty makes prime push Liberty Financial has taken the first step in a realignment that will see it reposition itself in the eyes of brokers as a genuine contender across “the full gamut” of the credit spectrum. The lender announced that for the month of September it would absorb almost all nongovernment customer upfront fees (including valuation fees) on prime residential loans, which it said would lead to savings of over a thousand dollars per loan. Liberty group sales head John Mohnacheff said the lender is currently seen by third party brokers as operating only as an alternative lender – or where to go when the banks say no – and

had become “the ultimate victim of its own success” due to this strategy. The prime offer is the first in a series of strategic moves that will seek to reposition Liberty Financial as a genuine non-bank lender of choice for prime home loans, in addition to its traditional strength in servicing customers with financial difficulties. “What we are saying to people is that Liberty is able to play in the entire credit spectrum, so everything from ultra-prime, through to people who have had financial difficulties,” Mohnacheff said. The strategy is a direct push into the lending segment

dominated by the major banks, and Mohnacheff said if the strategy was to have an impact, it would need to “capture the hearts and minds” of brokers. “We are starting to engage with the broking community and are relying on the brokers to give the message to the consumer that we are a genuine alternative to the major banks,” Mohnacheff said. The prime push marks the end of a more “subtle” approach to talking about Liberty’s offering, according to Mohnacheff, as “we have to embolden ourselves to take on the banks.” As such, he said brokers can expect a “stream” of information to flow into the third party space in the near future, as the lender goes in pursuit of this market repositioning. Liberty’s interest rates start at 6.8% and it offers LVRs up to 95%; and Kendell Mahnken,

general manager of personal business, said that brokers can also expect service levels “that ensure quick settlements for our customers”.

John Mohnacheff

Caveat lenders to form industry body Short-term lenders have launched their own industry body in an attempt to improve the industry’s chequered

Paul Stone

reputation. HomeSec Express director Paul Stone revealed that the association, to be called the Australian Short-Term Lenders Association (ASTLA) will attempt to provide “one voice” for caveat lenders, as well as establishing a code of conduct for the industry. “For a number of reasons, the short-term business lending industry is very fragmented,” said Stone, “As a result, it tends to be that regulators only hear the negative stuff, such as where a loan is used inappropriately for consumer purposes.” The body will enforce a code of conduct on members, as well as providing a complaints process for consumers and businesses and regulatory updates for member lenders.

It will also liaise with government and regulators, with one of its first priorities to make a formal response to ASIC’s consultation on phase two of the national consumer credit regulation. However, Stone also highlights that simply making caveat lenders more visible will also be a key task for the association “We probably haven’t been overt enough about what we do,” he continued. “For every ‘yuck’ loan, professional lenders can provide evidence of 100 good ones that have helped small businesses out of a spot or helped them take up an opportunity. We can also talk about the thousands of times where lenders haven’t funded loans because it would be inappropriate.

“ASTLA’s about showing that caveat lending isn’t some shady secret society: it’s an essential service for small businesses.” The launch of the industry body follows comments from ASIC’s senior executive leader for deposit takers, credit and insurance providers, Greg Kirk, who told the Australian Financial Review that the regulator would be prioritising action on caveat mortgages. “There are consumers in trouble who are being offered caveat mortgages with very high fees upwards of $20,000. We [expect to] have a big impact there,” he told the AFR. Kirk also said payday or high-interest lenders would be facing initial scrutiny by the regulator.


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News

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Rent trap looms for first-time buyers Sobering statistics Do you believe that now is a good time to buy property of any type?

Why will you find it difficult to meet your mortagage repayments in some/all months?

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increase in supply and demographic changes – particularly a decrease in the average house size. Caputo also said that confidence “is on a tightrope” at present, depending on which way interest rates go. “While the general economic situation is strong, the expectation of increasing cash rates will be a continuing negative factor on confidence. However, if rates stay on hold for the next six months, confidence is likely to grow.” The Home Buyer Confidence Index revealed a bearish picture, with 20% of borrowers expecting repayment difficulties in the year ahead. Out of those respondents, 61% cited rising interest rates and a higher cost of living as key reasons for this likely difficulty. Market sentiment on whether it is the right time to buy a house also plunged, with only 25% of respondents saying it was the right time to buy a home, down from 50%, and 26% saying it was the right time to buy an investment property (down from 43%).

In ve s

First-time buyers face a vicious circle of rising rents and rising house prices over the coming months, according to Genworth’s acting chief executive. Paul Caputo commented at the launch of Genworth’s Home Buyer Confidence Index that the “rent trap” is set to return for many would-be homebuyers. This, combined with an increase of more than $44,000 in the average cost of a starter home, means affordability is likely to be a major issue. Caputo did not think that first-home buyers would be priced out of the market altogether, though. “Slower growth for the near future will offset some of the affordability issues,” he said. “We would also expect to see first homebuyers changing their behaviours in other ways in order to help save for a deposit – downgrading their rental accommodation, house-sharing or moving back in with parents.” Even so, he commented that the overall affordability issue would ltimately only be eased by an


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NAB nabs ANZ man Cahill NAB has appointed former Onedirect chief executive Antony Cahill to oversee Advantedge and NAB Broker. Cahill, who has been with ANZ for 11 years, most recently as global head of payments and cash management for financial institutions, will be executive general manager for growth in NAB’s personal banking business. He will take over responsibility for “accelerating the personal bank’s existing high-growth opportunities, Advantedge and NAB Broker, as well as identifying new growth opportunities as they arise”. NAB Broker in particular has been something of a star for the bank, achieving record results for Homeside home loan settlements and also significantly reducing the average time to unconditional approval for brokers.. “Cahill will also continue to oversee and drive the great results NAB’s third-party distribution businesses have been delivering over recent months,” said an NAB spokesperson. Prior to his most recent role at ANZ, Cahill also held a number of mortgagerelated roles at ANZ, including head of

wholesale mortgages distribution, CEO of Onedirect and CEO of Origin Mortgages. He also spent a number of years in both Australia and the UK as a strategic management consultant with Antony Cahill PA Consulting Group. Both Onedirect and Origin were casualties of the global financial crisis. Origin was wound down in April 2008 after credit markets dried up. Meanwhile Onedirect, which was launched in 2006 to great fanfare and often regarded as an aggressive competitor in the home lending market, stopped taking new loan or deposit applications in 2009 after it was unable to build scale. Cahill will join NAB in November, and will report to NAB’s head of personal banking, Lisa Gray.

Mortgage Choice reveals long-term ambitions Mortgage Choice is hoping to eventually move into mortgage management, according to chief executive Michael Russell. He revealed that an eventual transition into a mortgage manager would be the likely second stage of the strategy being kicked off by the launch of a major bank-backed white label product. However, Russell stressed that this is not likelyto happen in the immediate future, and is only likely when “sufficient flows” have been achieved in the white-label product, and once the firm knows “what it is designing will be attractive”. He also commented that the main impetus behind going down this route would be to “increase the number of touch points with customers”. Russell also said that the rationale behind launching its own white label is twofold: firstly to introduce more lender competition to its panel in the best interests of customers, and secondly to guard against blowout in turnaround times. “We don’t ever want to be held ransom again to turnaround times like we were in the GFC, when we were experiencing three-week turnarounds at points,” said Russell. “Pursuing this solution will hopefully insulate us from that, as we’ll be able to agree on certain service level

agreements with the lender on issues such as that.” He also explained that the product would not be branded Mortgage Choice, in order to ensure that the loan stands on its own two feet and is not given “an uplift” by being branded Mortgage Choice. Russell also stressed that franchisees would not receive higher commissions. “Our franchisees are remunerated on a paid-the-same basis, and that will continue to be the case,” he commented. “That’s been driven very strongly from the bottom: our brokers strongly believe in the paid-the-same principle.” Russell also commented that the advent of the white label product, “wasn’t terribly innovative”. “We’re certainly not the first company to do this – in fact, we’re probably one of the last,” he said. “We’re essentially just adding another lender to our Michael Russell panel.”


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Mortgage brokers stripped of market power Broker originated loans as a proportion of major bank housing loans issued 50% 45 40 35 30 25 20 15 10 5 0 ANZ

Jan 07

WBC

Jul 07

Jan 08

CBA

Aug 08

Mar 09

NAB

Sep 09

Mar 10

Sep 10

Source: Fujitsu Australia estimates (statistics based on number count).

Volumes of mortgage brokeroriginated home loans stabilised at 40% of the market during 2009 and 2010, but market power has “slipped from brokers”, according to a new report. The latest JP Morgan/Fujitsu Australian Mortgage Industry report found that usage of brokers by banks had stabilised at 40%, following a number of dips throughout the GFC which saw broker usage drop to below 35%. However, the stabilised figure is still below pre-financial crisis highs of up to 45% during 2007. The report suggests the focus by banks would now be on improving efficiencies in dealing with thirdparty brokers. “Following banks

trimming broker commission rates in 2008, we continue to believe the current focus is on improving the efficiency of the broker relationship to enhance the effectiveness of processing volumes.” Broker usage by the four different major banks remained “divergent but steady” across the board, with ANZ continuing to exhibit its higher broker usage rate to compensate for an underweight branch presence, and Westpac and CBA maintaining their reliance on mortgage brokers despite pulling back to system growth rates on their mortgage portfolios. The report blames NAB’s loss of housing market share until a slight uptick in 2010 on its significantly

lower rate of broker usage. National Mortgage Brokers managing director Gerald Foley disagreed with the idea that power had slipped from brokers, saying the “broker proposition to the consumer doesn’t get any better”. He predicts that brokers will be writing up to half of all loans in the market in coming years. “The fundamental broker proposition is solid,” he said. The profitability of loan portfolios is exhibiting signs of continued improvement, driven largely by longer loan durations and an increase in loan retention rates – meaning less customer capture, origination processing and exit costs.

However, the report also found that non-banks would have difficulty funding any degree of growth in the near future due to funding conditions, which were described as “not optimal”. “Non-major banks remain constrained by limited access to wholesale and securitisation markets, as well as intense competition for deposits from the major banks,” the report said, with the shift towards the major banks continuing following the financial crisis at the expense of other ADI’s and wholesale lenders. The majors increased their share of the mortgage market from 67.1% to 76.3%, even when taking into account the financial-crisis induced bank mergers involving St.George and BankWest on a pro forma basis. The report predicts that a growing emphasis on portfolio profitability would likely see CBA and Westpac seek to remain at current system growth rates for their mortgage books, after sharp increases due to the previous BankWest and St.George acquisitions. Martin North, Fujitsu industry group executive director, said that overall there was stability emerging in the mortgage market and demand for home lending continued to outweigh supply. “The underlying issue of housing affordability is translating into relatively stable profit results for the mortgage providers despite tightness in funding markets,” North said.

Households vulnerable to rate rises Australian households are “delicately poised” at current interest rate levels it is claimed, and increased household leverage in Australia could see the proportion of disposable income servicing interest hit historical highs above 11% during 2011. A JP Morgan/Fujitsu Australian Mortgage Industry report released

Why are households vulnerable? • Household debt relative to GDP up to 135% • 11% of disposable income just to pay debt by 2011 • Fixed rate popularity remains low at around 5%

in September said that 10% of disposable income is being used to service interest at a standard variable rate of 7.4%, up from a dramatic dive to a 7.5% slice of disposable income following emergency settings of the cash rate by the RBA, during the global financial crisis. The report warns if rates increase by 75 basis points by the end of 2011, the proportion of interest servicing by households could rise to above 11% – a return to historical highs, which in turn would leave households vulnerable to official or out-of-cycle rate rises. The delicate position is a result of an increase in household debt relative to GDP from 125% to 135% since mid-2007, the report said. The marked increase, at a time of

austerity elsewhere in the world, has been driven by a surge in high-LVR first homebuyer activity in 2009, and more recently, the return of upgraders and investors, who added to the debt load. “The current mortgage rate of 7.4% broadly reflects the average mortgage rate over the last 15 years, and should be seen as the likely minimum for mortgage rates over the coming years as the RBA tackles the inflation challenges associated with a rebounding economy facing capacity contraints,” the report said. “While the RBA sees those households who have taken on debt are relatively well placed, the increasing portion of national wealth servicing interest does not bode well for domestic consumption.”

The high proportion of variable rate mortgages exacerbates this vulnerability. Up until the February 2008 move in the official cash rate, an increasing proportion of households were locking in fixed rates to hedge against possible higher rates in a volatile market, resulting in a surge from 15% to nearly 25% of mortgages. However, the new report said the proportion of new loans written at fixed rates has remained between 5% and 6% of loans since mid-2009. There may be an element of ‘once bitten, twice shy’ for borrowers, who may be reluctant to lock in fixed rates despite recent tightening. For the latest on fixed rate loans, see Toolkit on pg 28


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INDUSTRY NEWS IN BRIEF House price growth to slow by a third

First-time buyer enquiries spike

Mortgages first, food second

New face for financial services

Worldly goods trump life insurance

Bank debt collectors harass customers

House price growth may slow by up to 30% over the next 40 years due to Australia’s ageing population. Research by Switzerland’s Bank for International Settlements says that capital growth is likely to slow as Baby Boomers retire and start living off their capital. The study shows demographic factors pushed Australia’s house prices about 33% higher than they would otherwise have been between 1979 and last year. “In English-speaking countries it seems that Baby Boomer purchases drove up house prices in the past, while their sales will drive real house prices down in the future,” said the report. However, these economies are projected to experience the negative impact of ageing from 2010 onwards.

One in five mortgage holders believe they will have to cut the amount of money they spend on grocery bills in order to keep up with their home loan repayments. A survey by non-bank lender Beat Home Loans of 1,000 customers paying off their mortgages found the majority believed interest rates would rise by at least 0.5% by the end of the year. Nearly half of 25–34-year-old homeowners are paying over 40% of their monthly household income on their mortgages, compared with 28% for 35–44-yearolds and 19% for 45–54-year-olds. Beat called the results “troubling”, and said they indicated “an alarming level of mortgage stress”, particularly among first-time borrowers whose budgets are stretched the most and who would struggle with rate increases.

Brokers may be better off diversifying into motor vehicle or home and contents insurance rather than life, as research suggests Australians are more willing to insure possessions than their lives or income. According to Roy Morgan research figures provided by Canstar Cannex, cars are the most insured item by consumers, while 54% of homes are insured, and 60% of their contents are covered. Canstar Cannex said this is “stark contrast” to life insurance – purchased by only 16% of the population – and other personal insurance, including trauma or critical illness, which only 3% of the population are insured against. Canstar Cannex’s Stephen Mitchell said: “It’s ironic we insure our possessions yet fail to insure the very thing that probably got us those possessions in the first place – our income.”

Enquiries from first homebuyers looking to crack the property market are continuing to rise. The latest figures from mortgage broker Loan Market show a 27.7% increase in enquiries during the month of August, when compared with the previous month of July. Loan Market chief operating officer Dean Rushton said some banks were increasing their LVRs, while lenders were also reducing fixed rates and offering spring specials to tempt first-time buyers. “This is ideal for first-time buyers who have been less active since boosted government concessions such as the expanded First Home Owners Grant were wound back at the end of last year,” Rushton said.

Prime Minister Julia Gillard named Bill Shorten as the new Minister for Financial Services and Superannuation, replacing Chris Bowen, who has moved into the challenging Immigration and Citizenship portfolio. Minister Bill Shorten is widely recognised as one of the power brokers responsible for the demise of former Prime Minister Kevin Rudd, who has been named as Minister for Foreign Affairs in the new Gillard Government. Shorten was previously Parliamentary Secretary for Disabilities and Children’s Services. Meanwhile, former Climate Change Minister Penny Wong replaced Lindsay Tanner as Finance Minister, following Tanner’s decision to retire from politics at the recent election held in August.

Confidential files reveal several debt chasers working for ANZ may have acted illegally by harassing debtors and seizing money from their accounts. According to media reports, bank insiders contacted the ACCC weeks ago to investigate the actions of bank collectors, such as phone harassment and the inappropriate issuing of legal threats and default notices. An ANZ spokesperson admitted its debt collectors breached industry guidelines in “a small number of isolated cases”. The files reveal that one collector froze more than $1,500 of a debtor’s money, despite being told that the debtor would be evicted. In another case, a collector tried to force a debtor to submit half their Centrelink welfare payment. ACCC guidelines require debt chasers to make reasonable allowances for debtors’ living expenses.

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Basel cash requirements raise credit supply fears

 Basel III capital requirements Common equity (%) Tier 1 capital (%) total capital (%) Minimum

4.5

Conservation buffer

2.5

2.5

2.5

Minimum plus buffer

7

8.5

10.5

New international capital requirements for banks could adversely affect the supply of credit to Australian borrowers, according to industry figures. The Basel III proposals, which were agreed in mid-September in Switzerland by regulators representing 27 nations, will require banks to hold a minimum of 4.5% of common equity by 2015, as well as a ‘conservation buffer’ of

6

8

2.5% by 2019. The current requirement is 2%. There will be an increase of the minimum Tier 1 capital requirement from 4% to 6% by 2015, again with a conservation buffer of 2.5% by 2019. While Australian banks typically already fulfil this requirement, CBA chairman David Turner has warned in the company’s annual report that Australia should think carefully before adopting a ‘one size

fits all approach’. “The major Australian banks came through the global financial crisis relatively unscathed, which is largely due to the fact that we were well capitalised and had put in place rigorous internal processes as a result of the adoption of advanced accreditation under Basel II,” he said. “There is a danger that higher capital and/or liquidity requirements could significantly increase the cost of, or reduce the availability of, credit.” Ken Sayer, managing director of non-bank lender Mortgage House, agrees that increased capital requirements could see the price of mortgages increase “It’s not that anyone is profiteering, it’s just that a safety net – cash – and a higher rate go hand in hand,” he said. However, Australian banks have “two pluses” in their favour, according to Sayer. “The first plus is they’ve got eight years [to implement the new rules], and the second plus is that Australian banks, generally speaking, are pretty sweet, and well run and administered.”

Analysts are fairly relaxed about the likely impact of the new Basel regulations on Australian banks. Southern Cross Equities banking analyst TS Lim said that the big four banks would be “largely unaffected” by the requirements. “There were no surprises for the Aussie banks,” said Lim. “Even with the 7% core Tier 1 requirement, Aussie banks are already in excess of this number.” Australian banks may even be called upon by European lenders to return some capital to shareholders in the form of buybacks or special dividends. Even so, Treasurer Wayne Swan was quick to fire a warning shot across the bows of banks after the new capital requirements were announced. “These reforms will certainly not justify any bank looking to gouge its customers by raising (interest) rates...” he said. “We’ve just seen the major banks all report healthy profits... net interest margins are higher than pre-crisis, and their impairment levels continue to improve due to our strong economy.”

Legwork a lifesaver Arrears to rise as for busy borrowers interest rates bite The top reason for brokers being consulted on home loans is that they do “all the legwork”, the latest BankWest/MFAA Index has found. Judging consumer attitudes to third-party brokers, the Index found that 77% of the 1,000 individuals surveyed across Australia thought the top benefit of using a broker was because they did all the work throughout the process of obtaining a loan. The second most popular reason for using a broker was having access to a wider range of loans (75%), while brokers’ expertise and knowledge across a range of mortgage products from a variety of lenders was valued by 73% of consumer respondents to the survey. However, BankWest and MFAA analysis of the results argue that legwork – though the most valued attribute of the channel – may not be enough for its continued success. Other findings showed that mortgage brokers were failing to take advantage of increased consumer awareness of their profession to promote and articulate their value proposition. While awareness of brokers is increasing (currently at a high

of 97%) nearly a quarter of consumers surveyed were unclear what a broker could actually do for them. MFAA chief executive Phil Naylor said accredited brokers “are not actively promoting the range of value-based services they offer”, and needed to do a “much better job”. High recognition levels were a positive for the industry, Naylor said. “This creates an opportunity for our industry to change the perception of mortgage brokers, and better educate consumers about the benefits of using a broker.” BankWest retail head of specialist sales Ian Rakhit said the overall proportion of people who understand the benefits of brokers had bounced back from a trough in November 2009. “The introduction of the NCCP Act has enhanced how accredited brokers are perceived by consumers, government, and other key stakeholders,” Naylor said. “Professionalism and education are increasingly being recognised as a key differentiator so the industry must capitalise upon this momentum.”

Poor performing loans will increase as a percentage of banks’ loan books in the third quarter of this year, as previous interest rate hikes feed through into borrower repayment troubles. Fitch Ratings has said RMBS performance will deteriorate during the quarter, and that low-doc conforming sector arrears could hit “a new high” before stability at the end of the year. The Reserve Bank increased interest rates to 4.5% in May 2010, which was the last of three consecutive monthly rises since March. Fitch Ratings said that as a result of these successive rises in rates, banks would see a delayed impact hit their books in the third quarter. Though arrears in the low-doc conforming segment are lower than in the non-conforming sector, Fitch has warned the “interest rate shock” on households since early this year could see them increase further, to “a new historical high” for this sector. However, Fitch said as “the current financial environment in Australia appears to be more stable than two years ago”, the pressure on borrowers will be less than in 2008 – leading to signs of

stability in RMBS arrears levels by the end of 2010. “Any increase in delinquencies due to a hike in cash rates should not be mistaken as a permanent long-term trend for the Australian RMBS market,” the ratings house said in the September update. “It is likely borrowers will bear the temporary shock, and arrears will stabilise in following quarters as households are used to historically higher rates and are expected to adjust quickly.” A housing bubble – if there is one – will only improve the RMBS figures for this year, as it helps boost recoveries on those properties that do proceed to default. With undersupply problems and price appreciation, recovery times and rates will remain high. This is reflected in LMI claims, which are stabilising at an average of 77,800 a claim, which puts claims and losses at “extremely low” levels, according to Fitch. Previously, three consecutive increases in rates by the RBA in the last quarter of 2009 resulted in higher RMBS arrears in the first quarter of this year. This leads the Fitch update to conclude “the same is likely to happen with the latest hikes.”


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Lead generators caught by licensing regime? 100% loans could save ‘lost generation’ Australia could be in danger of seeing a lost generation of homebuyers unless action is taken. Paul Ryan, founder of Opportune Home Loans and the Home Loan Hints website, is calling for lenders to introduce a first home buyerspecific 100% LVR mortgage to enable more people to get on the property ladder. This, he argues, would help potential buyers who are struggling to save a deposit. “Even with a 95% LVR, we’re still asking first home buyers to come up with a deposit of $25,000 – and that’s without getting into fees and stamp duty,” said Ryan. “There is a generation of potential first homebuyers out there who are earning good incomes, but are struggling to save.” However, Ryan – also a founder of Wizard Home Loans – argues that such a move should be carried out responsibly. “Currently, most lenders calculate a home loan application with a buffer of 2% above the interest rate to hedge against interest rate increases or other mitigating circumstances,” he said. “If you increase that buffer to 3%, then you will reduce the cont. from cover

>>

The existing NCCP conflict of interest obligations are under further pressure due to commission structures in the motor vehicle finance sector, which may in fact force legislators to grant an exemption, or engage in a wholesale revision of commissionbased remuneration. In the sector, commissions can be structured so brokers obtain a higher commission if the interest rate on the loan is increased. Lenders often set a base rate, or a rate band, and allow brokers to ‘dial up’ the interest rate to an agreed ceiling amount. This puts brokers in direct contravention of the already legislated conflict of interest obligations, as it can result in a consumer paying significantly more in interest while a broker obtains a higher commission because of the higher rate.

amount the first homebuyer can borrow, meaning payments remain affordable. It would also reduce the risk of house price inflation, while still getting borrowers into properties.” Ryan expressed concern that, if action is not taken, potential buyers may simply resign themselves to renting forever. “I think we’re in a really dangerous position – we’ve seen comments on the Home Loan Hints website from some people who have just given up on ever owning a home,” he said. “If that is the case and people just continue to rent, then the investment market will probably respond by increasing rents. “Even if a first homebuyer is doing everything they can to save, then what are they not spending money on – and what implications does that have for the economy?” he concluded. Ryan’s suggestion has provoked fierce debate on the Brokernews forum, with one broker blasting the idea as “the most dangerous and absurd thing [I’ve] read for a long time”, while others thought the proposals had merit if managed properly. Treasury is currently consulting with industry on the matter, and Keating said a wholesale industry “structural change” will be required, or the legislation must be changed to allow for disclosure, rather than outright prohibition under the law. Alternatively, ASIC may seek to provide some exemption under its powers, but she said that is “most unlikely”. Under the law, penalties for breaches of the conflict of interest obligations can be up to two years gaol. Hair said no one knows how or when the conflict of interest issue will be resolved by ASIC or the courts, and will likely only be tested when a consumer experiences financial disadvantage and seeks redress under the NCCP Act. “Whilst it may not be possible to be completely free of potential conflict, brokers will need to ensure they do not wilfully and/or knowingly allow a conflict to arise,” Hair said.

Lead generators who do not register under the credit licensing regime risk falling foul of the market regulator. Vicki Grey, a partner at Gadens Lawyers, has warned that lead generators could be caught by the credit licensing regime even if they put referral agreements in place with brokers. “Lead generators will not fall within the exemption that has been arranged for referrers, as one of the conditions is that the referrals must be incidental to the main business of the referrer’s company.” she commented. Grey went on to say that such companies would need to apply for a licence or credit representative status under the NCCP regime, as they could be seen by ASIC as an intermediary providing credit assistance. She also warned that lead generators who have not registered under the credit regime could already be breaking the law, and should contact ASIC about registering under its late registration program. However, ASIC would not be drawn on whether lead generators would need to be registered and licensed under the credit regime. “Generally entities engaging in regulated credit activities – including providing credit assistance or acting as an intermediary – are required to be registered and then licensed, or to be an authorised credit representative of an entity that is

registered or licensed,” said Greg Kirk, ASIC’s senior executive leader, deposit-takers, credit and insurers. “There are a number of different exemptions for referrers with each having different conditions,” he added. “We would not want to comment on whether any particular business or sector of businesses fall within one of the referrer exemptions without having the full details of the activities involved.” Kirk acknowledged that “it is the case that, where a referral includes passing the consumer’s name and contact details to another licensee, one of the conditions to fall within the exemption is that the referral activity is done as an incidental matter to the carrying on of another business”.

Greg Kirk

Protecting yourself from conflict Identify conflict: The first step in mitigating any conflict of interest is to be able to identify potential conflicts; this might include the ability to earn increased commission on certain loans, the opportunity to receive benefits (financial or otherwise) by recommending certain loans or some form of sponsorship or other endorsement by a credit provider or other industry participant. Whether or not a conflict arises is a matter of fact (measured after the event), but a conflict is generally considered to arise where the advice and/or recommendation of the broker is influenced by the opportunity to gain some form of benefit and it is reasonable to assume the advice/recommendation may have been different (given the facts) if that benefit was not available to the broker. Mitigate and manage: As a general rule, mortgage brokers are unable to influence the level of commission they receive from individual lenders; they can choose between lenders and such a choice (recommendation) may have commission implications. Brokers who follow a consistent and disciplined process of establishing the consumer’s current financial position and objectives and apply a consistent analysis and recommendation process are (in my view) less likely to run foul of the conflict of interest requirement. Disclosure is important but will not of itself discharge the broker’s obligation. Ray Hair, PLAN chief executive


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27/09/2010 11:55:28 AM


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Comment VIEWPOINT

ASIC’s role as industry regulator has escaped close scrutiny – but no longer. A panel of leading lights give their take on ASIC’s record at a recent Broker News TV discussion

Joe Sirianni

Ray Hair

Brendan O’Donnell

John Mohnacheff,

Executive director, Smartline

Chief executive, PLAN Australia

Chief executive, Choice

I must admit that at the outset I had grave concerns in terms of ASIC’s ability to deal with such a large number of brokers who were registering first and licensing second. And I thought this would be a disaster. But to my surprise the registration process went through very, very smoothly, so everyone is now registered and it was quite efficient. And what I am seeing now with the licensing is a lot of individual brokers have applied for licences and received licences, so it’s transitioning very smoothly. I suspect there’ll be a big choke towards 1 January, but so far I think ASIC has really done quite well. The real test of course will be post-January, but so far they’ve done well. They’ve been doing some visits – some of our guys have had a knock on the door. They are actually going out and seeking feedback from individual members, so that’s quite pleasing from our perspective because they are drawing input.

Whether it’s the ATO or ASIC or whether it’s financial planning or broking, the regulator has to provide guidance. At the moment, I think ASIC is playing with one arm behind its back, because the legislation and the regulations haven’t in fact all been finalised – so it becomes very difficult. They are not providing a lot of interpretation because they don’t have the clarity themselves. So there are those aspects that still have to be addressed. And they will get out and become more active in the market after 1 January. Right now they are doing the right thing in terms of the administration and the setup. But they aren’t being proactively seen in the market at this stage. They’ve been doing some visits, absolutely. But in these situations, how many times have you heard when I’ve asked a question on interpretation, I’ve been told you’ll have to get your own legal advice? So there is still that lack of clarity. And I don’t mean that as a criticism, it’s just the environment we are in.

The risk is that people have a tendency to leave things to the last minute. And I must say I’m actually really concerned about December/January. If there are brokers out there who want to have their own licence, they should be onto that immediately. I think ASIC’s geared up in terms of infrastructure to issue more licences than in fact I think they’re going to. Because I think you’re going to find the aggregators will bring in a lot of the credit reps under them, so there is only one licence being issued. But, for those who are carrying their own licence, if you are going to leave it until, say, November to submit, and then get a response back saying you’ve got to get further advice or it’s not adequate in terms of a submission, you could be in a position where you get to 1 January and you aren’t approved. So there are some challenges there, and it will be interesting to see how they manage over a holiday period.

Head of group sales, Liberty Financial

OPINION I believe that spring will see the beginning of the market resuming its next phase of the growth cycle following a plateau during winter. Auction clearance rates have dropped from above 70% to around 60% but this is still a healthy level. It’s normal for the property sector to experience short periods of high growth followed by shorter periods of market stabilisation in a long-term growth cycle. Real estate markets rarely grow in a straight line. I strongly disagree with some commentators who have been

I think sometimes there is an element of confusion in people’s minds – ASIC is not the legislator. They are the regulator. The legislation is there. They are not going to adjudicate on the legislation. This is up to the courts. So the government of the day set the NCCP Act in force. These people then, as of 1 January, will be the policemen. So they will never give you an opinion. You know: “Sorry officer I was speeding.” Well: “Yes you were, and here’s your ticket.” If you want to get into a fight, you can. They will be policing, but they will not be adjudicating – that will be up to the courts – and I think, get in now, research and ask questions. Because if you are relying on ASIC to make a call – forget it.  This Broker News TV panel discussion took place in Melbourne in early September and covered a range of topics, including the latest on licensing, funding costs and commissions. To view more of the discussion, visit us online at www.brokernews.com.au/tv

Spring has well and truly sprung, but what does it mean for the property market? McGrath CEO John McGrath gives his take on whether the sunshine will warm up the housing market predicting a major correction in Australian real estate prices. I have heard these predictions on and off for 30 years and I’ve never seen a correction go beyond 20–30% or last longer than 18 months. Neither constitutes a collapse – more so a short-term re-pricing or pause in the growth cycle – which is indeed a healthy thing. I was recently on Switzer TV with BIS Shrapnel’s chief economist Dr Frank Gelber, and he predicted that residential prices in inner city and key coastal locations will grow by 30% over the next three

years. I’m in agreement with his predictions and I am optimistic due to the underlying fundamentals of strong population growth, a major undersupply of housing, a robust local economy and the return of the property investor.

Market observations Here are a few of my key observations and views on the current market.

• I anticipate spring will be a strong selling market as we will see superior listings hitting the market

at the traditional peak selling period, coinciding with growing buyer confidence courtesy of an improving economy. The other factor is a slight backlog of buyers seeking homes after the federal election, which should add to the pressure. There is only one thing that could hold back the growth of the residential market over the next 12 months which is a doubledip recession – which appears unlikely. Therefore I anticipate the market growth phase to kick-start within 60 days.


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FORUM 100% LOANS ARE BACK, AMID FEARS OF A HOUSING BUBBLE BURST 100% loans may seem like something the financial crisis ended for good, but Paul Ryan from Opportune Home Loans thinks otherwise. Here’s what you had to say about the resurrection of high-LVR lending (see page 20) – as well as other issues – on the Broker News forum. This is the most dangerous thing I have read in a long time. If someone cannot save a deposit of 5% then they cannot afford a home loan. It costs at least $10,000 a year more to own a $400,000 property than it does to rent it. That is just based on the current relatively low interest rates. If that person cannot save at least $20,000 over the space of two years (which is not a long period to save over) then they cannot afford the repayments. People do not magically start saving money thanks to the ‘forced saving’ of a home loan. They instead suffer the stress of not being able to make ends meet and blow out their credit cards. Removing negative gearing would be far more beneficial to first homebuyers because it would cause a massive amount of property to go on the market at reduced prices. Commented by: Genius at 15 Sep 2010 10:12 AM While I don’t agree with your comments regarding negative gearing and investors, I do agree 100% with your thoughts on 100% lending. None of those claiming that we need high-LVR loans seem to understand or are willing to explain how someone that is unable to save any deposit at all will magically be able to find an extra $200-plus every week to repay a mortgage. Commented by: Common Sense at 15 Sep 2010 11:04 AM I understand both the for and against, but for those against, in a rising market the 5% or 10% deposit is continually shifting upwards. On $400k, 5% is $20k. If it takes someone two years to save $20k, the house will possibly be worth $500k – now the 5% is $25k and only continuing to grow. So it is not a deposit on $400k that they save for, it is quite possibly a $500k or $600k amount two years into the future. A property I have has gone from $250k to $750k in around eight years – a 5% deposit requirement of $12.5k to $37.5k in that time. How do we get young people earning an income and have a saving habit confident that at the end of two years they can make a deposit in a market where the goal continues to shift upward? Commented by: WalterF at 15 Sep 2010 12:25 PM Good to see the over fifties – we did it hard in our day – out and about today. It makes sense as the first homebuyers still have to save ancillary costs, and if the serviceability ratio is 3% above the interest rate then it means that they can’t borrow as much as a normal borrower and can clearly afford to pay the loan under such calculations. Commented by: Gen Y Broker at 15 Sep 2010 03:54 PM

• Interest rates will continue to dictate market demand, particularly at the lower end. First homebuyers will probably accept one more rate rise but beyond that we may see a slowdown in activity.

in demand as the top end of town gathers confidence as we leave the GFC behind us. We’re likely to see patchy growth over the next 12 months depending on the depth of demand and the unique traits of any given home for sale.

• Sydney’s most active market sector is sub-$2m due to demand from upgrading families in the inner and middle rings. As the sharemarket improves, so will the $2m–4m bracket, but this may take a little more time.

• Regional markets are still relatively soft but the increasing strength of the major metropolitan markets should spill over to the regionals in 2011. We’re already seeing new interest in holiday homes and weekenders plus rising demand from executive families looking for a lifestyle change in areas with a fast CBD commute.

• The market above $4m has been somewhat stagnant but I suspect we will see an increase

For all those against the idea, I assume that when 100% loans were available, you chose not to write them and demanded customers save 5%. Codswallop. In the scheme of things, the difference between 95% and 100% is three-fifths of five-eights of nothing. I have long held the belief that Australians are hopeless savers but very good at repaying debt. As a broker who has lent to hundreds of buyers at 90%, 95% and 100%, I can tell you the 100% borrowers don’t show a significantly higher level of arrears. Why? Because the lending criteria was always higher and we pay money back better than we save! “Genius” – I assume you chose that name yourself. Commented by: Get over it at 15 Sep 2010 04:46 PM

Datamonitor’s prediction that a house price correction is likely – or a period of stagnant growth – sent shivers down some spines, and raised ongoing questions of spin. I’ve been a broker and financial planner for over 15 years. Seems to me that more and more articles from various sources are saying Australia has a housing bubble and the data and trend lines tend to support that. Interestingly the only ones disagreeing are vested interests such as banks and the real estate industry. I wonder why? Especially when they often spin the data interpretation. However, we could get a soft landing as the government will not be keen to see a crash. So we could expect an increase in the FHOG, or a Building the Homeless Housing project to inject life into the industry and support sales. What will stuff everything up is if investors decide enough is enough, and refuse to roll over securitised funds. Commented by: Peter Connolly at 13 Sep 2010 10:40 AM Where’s the truth here? It’s hard to tell what is manufactured and what is logical and sensible in such an environment since various experts seem to give widening opinions. I’m in the process of buying an owner-occupied property – paying a bit of a premium for it because of the position – and comments like the above send shivers down my spine, as I could be in over my ears with debt that has a security worth less than the debt. We need to be responsible, especially those who send predictions flying – such things could put the break on activities and the economy in jeopardy. Commented by: Broker buying a property at 13 Sep 2010 11:11 AM TO: ‘Broker buying a property’. My friend you’re right, no one wants to scare people or crash the economy. However, what many see as inevitable is that ‘things’ need to cool down. I don’t agree with those who predict a 40% reduction; but I advocate that we all acknowledge that house prices have massively outpaced real incomes. Commented by: ... The Mortgage Man TM ... at 13 Sep 2010 12:30 PM To join the debate, go to www.brokernews.com.au/forum

• Independent property researcher RP Data says apartments are now outperforming houses in average annual growth. Over the past five years, apartment prices have risen 7.4% pa, compared to 7.1% for houses. This is a new trend because over 10 years houses are way ahead at 9.9% compared to 8% for apartments. Changing demographics will contribute to apartment popularity with the ABS predicting the most common household type will be couples without kids by 2013/14 (ie emptynesters and young professionals). • Rents will continue to rise due to the current undersupply and

investors can reasonably expect average annual yields of 4.5–5% in prime metropolitan locations close to transport, cafes and beaches. I predict rents will enjoy double-digit growth, particularly in inner-city markets. • First homebuyers have dwindled but an RP Data report proves that in every major capital you can still buy a house within 10km of the CBD for less than the city’s median, if you know where to look. In Sydney, I suggest looking at areas like Marrickville, Tempe, Sydenham and St Peters – which are all on the train line.


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Insight EXECUTIVE COUNSEL

Mark Forsyth

Firstfolio chief executive Mark Forsyth’s diverse international career has given him a unique perspective on what it takes to succeed. He shares his insights with Australian Broker

Name a business leader you admire. Why? Larry Hillblom, the founder and architect of DHL (he’s the H in DHL). He was so bizarre but brilliant. He created the whole on-board courier concept and was instrumental in ending many postal monopolies, including the US. He created a global business with internal cash flow only – now how often do you hear that? What main goal/s got you to where you are? My main goal was to travel. I wanted to see the world and that led me to my career choices. I joined the Royal Navy at 15, then got into finance later on only as a means to an end. I then went to the Middle East with DHL at 25 and the rest is history. Is success due to talent, hard work or luck? All three, but I think a lot of hard work and even more importantly, finding the role or type of work that makes you feel like a ‘round peg in a round hole’. What character trait has helped you the most in business? Tenacity and creativity, to which people will be thinking ‘creative in a finance company?’ However, all of my working career has been centred around problem solving in often hostile markets, eg Africa. It’s the ability to think around or beyond the problem – and sticking to it. What is the key to great business relationships? Like any relationship, it’s about listening and understanding the other perspective. In terms of business, however, it’s important that you respect that it’s somebody else’s business – not yours, for good or for bad. What’s the first thing to look at when growing a business? Are there any people in this business that are passionate about it and are committed to doing ‘whatever it takes’? Many people say they are, but want to work nine to five and take home a big salary – that’s not it. What’s the best piece of advice you’ve ever received? From a business psychologist: “You don’t know who you are, you’re not doing what makes you happy or feel good, and you’re not focusing on your creativity...” It really hit me. I changed my career in 12 months, then spent three years working it out and have been happy ever since! What trend are you currently watching? A rapidly ageing population (Baby Boomers), which will have – and is now having – a massive impact on economies; but what markets and business opportunities will this create? What is your next big ambition? To do a whole ski season somewhere or a whole ski season skiing everywhere!

Cross-selling success Some have embraced it, others are avoiding it. But the incentive to cross-sell is certainly not going away. Australian Broker asked two leading industry figures how brokers can better get to grips with this inevitable and quickening trend

are the advantages of adding QWhat new products to a broker’s mix?

Hugh Peck, Lifebroker: There are a number of advantages with adding personal risk products. These include: 1. Having an additional income stream which can not only boost income, but act as an income hedge. Some brokers who have started offering risk protection actually generate higher income from the insurance than from the loan. 2. By diversifying and offering more products to clients, you can create a stickier, longer-term client. If you don’t offer them personal risk products, someone else will. 3. As part of responsible lending, brokers have a duty of care and need to ensure their clients are protected in case they are unable to work and earn an income, due to illness, injury or death. Jeff Zulman, Vow: For a broker to add value they have to show that not only are they providing a loan but they’re concerned about protecting that investment for them. When you start with that perspective, home insurance, income insurance and other products complement the mortgage package that’s underpinning (what is for most people) their biggest life investment decision. What follows from that is that if brokers do this well, they are going to get more referrals, their customers are going to be ‘stickier’ and, as a consequence, they will generate more income.

10 steps to successful cross-selling • Know the advantages • Set realistic goals • Prepare your approach • Know your products • Be confident • Pick the right partner • Have/use the right tools • Prepare/use FAQs for clients • Explain by painting a picture • Maintain your mortgage focus Source: ALI Group

are some realistic goals for Q What brokers looking to cross-sell?

HP: This really depends on the broker. Some brokers take longer than others to get personal risk embedded in their processes. Brokers should aim to refer every client. Even if a client already has some form of life insurance, they could save up to 50% on their premiums by getting a quick comparison completed. Another key point I need to stress is the importance of building a pipeline, as some clients will make fast decisions and others may take a couple of months. Realistically, not every client will take out a policy, but the more you refer, the more confident you’ll be in the process and the greater the rewards you stand to benefit. JZ: Start out being good at some aspect of value-add; in other words, have a core operation and then build from that core. Don’t try and become a master of all things until you have mastered one. In terms of product knowledge, it’s absolutely vital you are across the detail. Make sure you get accreditation; Vow now offers electronic training courses for this. They can also do long-distance training, classroom training and attend conferences where they can get access to this type of knowledge in a positive learning environment. In these situations your peers can often be the best teachers. Mentoring can also play an important role, especially in the early stages of cross-selling. In this respect having relationships with insurance brokers and financial planners can be very beneficial.

Jeff Zulman is chief executive of Vow Financial

Hugh Peck is national manager of Lifebroker


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are some good ways to come to grips with the QWhat required product knowledge?

MY WAY

HP: Under a referral model, brokers don’t need extensive personal risk product knowledge. Having a high-level understanding is more than enough. By delving into too much product-specific information, unless licensed to do so, brokers could be seen as offering advice. The best approach is to refer your clients to a provider who specialises in personal risk. Lifebroker provides ample training to give brokers the knowledge they need.

can brokers pick the best partners when they start QHow cross-selling?

HP: Once you have won a client, you want to keep that client. There are many people in the market wanting to partner with brokers. When looking to find an alliance partner, brokers need to assess the following: Will partnering with X be in the best interest of my clients?; Does X align itself with my business model?; Loans are not ‘one size fits all’ – neither is risk protection. Does X offer flexible solutions for my client?; Will X try and cross-sell other products to my client?; What level of service is given to my clients? Most providers offer similar rewards and commission structures, so it should really come down to what makes sense for your client, for you and your business. Giving your clients a positive customer experience creates long-term clients. JZ: This is a matter of education and experience, especially in the early days where there will be a degree of trial and error. Aggregators should be running product training days that are attended by the people that sell these products. In this way a broker can see what’s on offer and make an informed choice. It’s all about developing a framework for comparison between the different product providers. It’s not just about price, it’s about terms, it’s about consistency (does the product provider offer a low price but then have a history of increasing their variable rates?), and it’s about the support they offer once you have bought the product.

can brokers make the most of their cross-selling Q How opportunities?

HP: The best sellers of risk products are those who believe in them. When a broker believes in the product, they can sell the need for that product. Brokers should go through the process themselves and get quotes for life insurance, so they have an informed view. Most people know of someone who has fallen seriously ill, become injured or even passed away, leaving behind debt and no future income for the ones they love. Using real-life examples is a powerful way to get the message across. Lifebroker provides the training and collateral needed to refer warm clients. We have just developed ‘A Simple Guide to Life Insurance’ which puts life insurance into plain English, talks about why people need it, what it covers and how to get it. JZ: The most important is the most obvious – brokers have to ask the client the question: What insurance products would you benefit from, whether it be home insurance, employment insurance, etc? If you don’t ask, you will never know. In regards to technology, Vow is now in the process of providing its brokers with the tools to cross-sell other products. I believe it’s largely a matter of brokers thinking outside the square and looking at their clients in a more holistic way. For brokers who do this well, they are going to create clients for life, not for one transaction.

WORK IN PROGRESS  How do I become a more successful networker? Networking is a vital tool because at the end of the day, everyone is doing business with people. Whether it’s emails, text messages or in person, if you don’t have the skills to engage in conversation, then you are not going to be able to do business, or generate sales. The best way to initiate a conversation: Have a first statement or opening question that allows you to initiate a conversation, and send it in the direction you want. For example: “if you could buy your dream house, what would it be?” The answers will allow you to find out more about the person. Saying you are a broker straight away may put people on the back foot. How to get a closed/negative person to open up: Ask the person, “what’s the best thing that happened to you today?” They’ll answer, and this will get them feeling light, happy, connected and feeling good. People Source: Jen Harwood, International Business Champion

25

Gerard Tiffen

Tiffen & Co’s Gerard Tiffen has long blazed a trail for the mortgage broking industry, having become one of its most well known and successful advisors. But how does he do it? Australian Broker asked him for some insight into his business and world view

What is your greatest business achievement? That would have to be sustaining a successful business for over 10 years. There have been many obstacles but persistence and dedication have always kept me on track. What’s the key to getting business through the door? Over the years I’ve invested considerable time in developing and nurturing relationships with not only clients but also business partners. Many of these ‘referral sources’ I’d now consider my friends. It’s easy to do business with people that you like! What goal/s have got you to where you are now? I have always been a goal-driven person but these tend to centre on my personal life. I find that if I concentrate on these goals, then the business goals actually take care of themselves. Who has helped you the most, and how? I’d better say my mum because I’m sure she will read this! In all seriousness, in the early days, my accountant was the one person that helped me define my professional pathway. This is something I’ve always kept in the back of my mind and review whenever possible. What character trait do you most value in yourself? I think my most valuable attribute would be my ability to put clients at ease and develop genuine rapport with them – all before getting down to business. How do you stand out from the crowd/competition? Professionalism is number one! This should be in every facet of a business (from how you present yourself to the appearance of your office) and not compromised at all. I also work with a team of dedicated, educated professionals who always put our clients’ needs first.

remember people who make them feel good and they do business with people who they know, like and trust.

What do you tell yourself when the going gets tough? Nothing can be that bad! I always try to remain positive about all situations.

How to prepare for networking opportunities: First, schedule time for it – ideally once a week. Stock up on business cards, and put some in places where you may need them – your jacket, your car. Use a business card holder. Arrive early, as people are more open to talking before an event. Park your car in a prominent position (if it has signage). Lastly, in conversation, always ask yourself, “why am I talking?”

What do you want to improve in your business? Our goal is to provide additional services to clients. I believe risk insurance is a good fit with mortgages but the difficulty is to find a model that works within our company structure and doesn’t impact on our core business.

How to refine networking efforts to attract clients: Go to the ‘local spot’ – every place has one, where business people or the community congregate. You’ve got to be there, and be seen, and people will often talk to you. Also, dress appropriately. People judge based on what they see.

What advice would you give an ambitious broker? Strong relationships are the key here! Maintaining regular contact is vital. It can be easy for clients to forget who wrote their loan a few years ago, so stay in touch and be genuine in how you approach this. Also maintain a sense of urgency about each and every client’s requirements – they deserve to be treated as such. What’s your next great ambition? Apart from my family, I’d love to write a book! I’ll probably need to engage a ghost writer – I’m bad with words.


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Market talk

Population boom

What’s the real story behind Australia’s population growth? BIS Shrapnel managing director Robert Mellor reveals the facts behind migration figures

M

igration was the subject that neither political party really wanted to talk about during the election campaign. Our view is that net migration will fall back to 175,000 this year, down to 145,000 next year, and then return to 250,000 in 2014/15. The critical thing is to understand what is driving these numbers. First of all, in the early part of the Howard Government, net overseas migration was about 100,000 per annum. That rose to about 235,000 in the latter part of the Howard Government. The reason net migration rose to 235,000 and then 299,000 in the following year wasn’t that the government had suddenly opened up the doors to take in more residents. In fact, the increase in permanent migrants accounted for less than a third of the overall increase in net migration. The real driver of the growth was the fact we had a massive increase in the number of people who came here on long-term visas for three or four years. These aren’t necessarily permanent migrants – although some of them might apply for permanent residency. The number of Australian residents returning home is increasing over time, but it’s modest compared to longterm visas. The biggest issue in terms of Australians is

the number of Australians departing – during the GFC, that slowed because there were no jobs. However, in the last six months, that’s turned a corner: Australian residents are going overseas for jobs again. The reality is that we went from around 200,000 people coming in on long-term visas in 2004/05 to 400,000 in 2008/09; probably around half of that increase came from students, and the other half from people on longterm working visas. Basically, we now have a permanent higher number of people who are living here on long-term visas than we have ever had before. This is down to being part of the international community. In terms of students, this also contributes to a massive increase in terms of export dollars: at any point in time there’s 500,000 students in this country, worth about $17bn. The other side of the coin is those on working visas. Well, if we hadn’t taken those people in, unemployment would have been about 1% lower back in 2007/08. What would that have done for wage inflation? It would have gone through the roof. We needed those people in the country – they prevented us from going into recession. I haven’t explained yet why immigration is falling off. Well, the bottom line is that most of these people on three- or four-year visas eventually go back home – and that’s what’s already starting to happen. We expect that will continue to rise over the next few years, due to government tightening up criteria for overseas students coming into the country and less demand for people on long-term working visas. If you’ve got fewer coming in and more going out, the net figure drops off fairly significantly. That’s the biggest driver of where immigration is likely to head over the next few years. Ultimately, we think net overseas migration will fall back to 145,000, but that is probably at the low end of the scale. If the economy grows faster than expected, we’ll see an increase in the number of people coming in on longterm visas, and there may be pressure from the education community to loosen the entry criteria. Population growth will still average just over 1.5% per annum, down from a peak of 2.1%. Even so, underlying demand for WE REVEAL THE COUNTRY’S housing on the basis of that population growth will be TOP COMMERCIAL BROKERS about 183,000 dwellings per annum – which is still way above the current level of supply.

Don’t miss the next issue the winners of the

australian mortgage awards

2010 are revealed

PLUS: • A look at the increase in products launched by aggregators • The future of commission payments • A round-up of the insurance sector

MPA – ISSUE 10.11 – OCTOBER 2010 MPAAd_AB3rdpg_719.indd 1

20/09/2010 9:24:36 AM


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NUMBER CRUNCHING

27

MARKET NEWS IN BRIEF Regional Australia set for property boost

 Approximate value of stock on market: week ending 5 September ACT $1,768,732,711

NT $832,650,066 SA $5,441,647,862

TAS $2,660,542,468

WA $18,700,128,683 QLD $38,024,698,584 VIC $24,401,402,920

A key pledge in Labor’s agreement with independent MPs could supercharge property values in regional Australia, according to Residex’s chief executive. John Edwards is arguing that the government’s pledge to invest to build affordable homes in regional cities along with infrastructure spending could be “one of the most significant policy shifts of modern times”. “Just the development of 15,000 new homes in regional Australia suggests a capital outlay … of something in the order of $3.7bn,” said Edwards. “Now couple this expenditure with the other initiatives the government is committed to in terms of this agreement: we have significant capital being injected into our regional cities.” Edwards added that the recent breaking of the drought as well as the influx of cash could mean that regional Australia “may well boom”.

Flat winter for housing finance NSW $36,913,855,726

Queensland and NSW hold the biggest share of the market, with each accounting for over one-third of the total value of stock on the market. Victoria is a close third. The total estimated value of stock on the market for Australia as a whole is $128.7trn.

The number of commitments for owner-occupied housing in trend terms was flat during July, according to the latest housing finance figures released by the ABS. “In trend terms, falls were recorded in all states and territories, except NSW, South Australia, Victoria and Tasmania,” said REIA president David Airey. The Housing Industry Association blames higher interest rates and “perennial supply-side obstacles” for continuing to have a negative impact on new housing loans. HIA senior economist Andrew Harvey said that from peak to trough, the recent fall in new housing loans is larger and faster than that which occurred during the GFC.

Landlord comes home to house sale scam

Auction clearance rates: week ending 5 September Clearance rate

Number of auctions

Sold

Sydney

61.7%

441

272

Melbourne

65%

611

397

Brisbane

25.3%

75

19

Adelaide

58.7%

46

27

Darwin

50%

6

3

Perth

26.7%

30

=8

Canberra

66.7%

27

18

Hobart

33.3%

=15

5

RBA predicts glowing economy

Auction clearance rates: week ending 12 September Clearance rate

Number of auctions

Sold

Sydney

67.9%

352

239

Melbourne

68.1%

540

368

Brisbane

19.3%

88

17

Adelaide

71%

31

22

Darwin

25%

4

1

Perth

50%

8

4

Canberra

61.5%

26

16

Hobart

25%

12

3

The post-election uncertainty seems to have afflicted auctions across the board, with volumes falling in the larger eastern markets (although this has had a beneficial effect on the relative clearance rate). However, Adelaide seems to have had a good couple of weeks, with both volume and sales remaining robust in its admittedly small market. Agents are tipping October as the month when sales will rocket: if so, we’d expect to see some increases from week ending 25 September. All information supplied by RP Data

Western Australian police are investigating how scammers were able to fraudulently sell a Perth investment property – leaving the owner $485,000 out of pocket. The property, which was owned by a landlord living in Cape Town, was fraudulently sold in June after a real estate agent was conned into believing that the owner wanted to sell the property due to “financial hardship”. The fraudsters were able to convince the agent this was the case through a series of emails and phone calls. The owner learned of the sale in mid-September and, upon his return, discovered the sale of his second property was at settlement stage because of the scam. He has since stopped that sale.

Australia’s new government will have a strong economic year ahead, according to reports from the Reserve Bank. The RBA delivered a statement indicating the economy had returned to trend growth in its recovery from the GFC. As stimulus money is phased out, private income and spending boosted by mining will keep the economy growing, said RBA governor Glenn Stevens. While credit conditions remain tight, the RBA indicated there was evidence “slowly emerging of more willingness to lend”.

Sydney set for spring surge

Pent-up demand and improving confidence could see up to 100,000 buyers hit the Sydney market this spring. Sam White, deputy chairman of Ray White and executive chairman of LoanMarket, told The Daily Telegraph that the Sydney market is “like a coiled spring”, and that the property group expected intense competition for the expected 24,000 properties that will go on sale in the next couple of months.


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Toolkit

In a fix T

he mortgage industry has been awash in recent weeks with a rash of rate-cutting on fixed-rate loans. Fixed-rate mortgages have never historically been the loan of choice for Australians, with variable loans consistently proving to be the preferred option. However, statistics from two of Australia’s largest aggregators, Mortgage Choice and AFG, have shown an increase in the number of

borrowers taking out a fixedrate product. Admittedly, they’re small increases – Mortgage Choice saw a rise from 2.2% to 2.9% of all mortgages from July to August, whereas AFG charted a jump from 3.4% to 3.9% in the same period – but they’re increases nonetheless. Mortgage Choice senior corporate affairs manager Kristy Sheppard reckons the slight increase is “probably due to two factors”.

“Talk of lenders planning to increase mortgage interest rates outside of the Reserve Bank’s cash rate cycle has been escalating in the past couple of months, and I’m guessing that has had some impact on the decision-making process of new home loan customers,” she says. “Another strong influence would be the relatively small distance between interest rates on a number of fixed and variable home loans.” Lenders who have made recent moves on fixed-rate loans include Aussie, ING Direct and National Mortgage Company, with three-, four- and five-year products all seeing movement. Aussie CEO Stephen Porges said its decision to take its threeyear fixed rate product under 7%  as down to a lack of competition in the marketplace. “The top rates we were seeing weren’t particularly attractive,” he said. “We thought we’d try to bring some competition back in, and calculated that we’d be able to sustain this rate with a reasonable profit margin.” ING Direct’s executive director of mortgages, Lisa Claes, attributed the second-tier bank’s move to a general sharpening of ING’s competitive position. “The bank has seen a noticeable increase in customers looking to fix their interest rate, and wanted to offer better value for customers attracted to fixing for longer terms,” she commented. “Over the last two

months ING Direct has been strengthening its fixed rate position in line with market movements and improving customer sentiment toward fixed rate home loans.” National Mortgage Company’s head of sales, Fernando Lemos, also attributed its cuts to fourand five-year products to a “slight shift to fixed rates, as consumers look for certainty in an environment where banks may move rates outside of the Reserve Bank cycle”. So, could this lead to a wholesale shift to fixed-rate products? Porges doesn’t think so. “We’re not expecting a significant rise in the proportion of fixed rate borrowers,” he said. “Australians have historically been more willing to accept the risks that come with a variable rate. I suppose that choosing a fixed-rate is like saying you know better than the bank as to where interest rates will go, and few borrowers are willing to take that gamble.” Even so, the risk of banks moving outside the RBA in the near future as, as well as the likelihood of increasing rates in general over the next few years, is likely to be playing on at least some borrowers’ minds. Indeed, for some, it might be enough to convince some mortgagees to consider fixing all or part of their home loan – especially if they are concerned about their ability to service their mortgage over the coming months.

Three-year fixed mortgages – cheapest rates Institution

Product

State Custodians BetterOption Greater BS HomeStar MyRate Quick Direct Sapphire Mortgage Service ING Direct Austral Mortgage Corporation Morgan Brooks DIRECT MECU Limited AMP Banking Heritage BS Homeside Lending Unicredit (WA) Adelaide Bank NAB Mortgage House PNCS NMC

SCMC Fixed 3y Fixed rate loan 3 Year Great rate fixed rate loans 25–36 months Fixed Rate Home Loan 3 year MyRate Fixed Rate Loan 3year Quick Direct Standard fixed home loan Sapphire Plus Fixed 3 year ING Direct fixed 3 year 3 year fixed 3 Year fixed rate loan Fixed Home Loan 3 year 3 year fixed rate 3 year fixed rate HomePlus 3y Standard Fixed Rate Fixed 3 year 3 year SmartFix Choice Package 3 Year Fixed Essential Offset Home Loan – fixed 3 year Fixed 3y Interest Rate Loan NMC – 3 year fixed rate

Comparison rate (%) 6.41 6.60 6.78 6.78 6.78 6.78 6.78 6.81 6.82 6.84 6.85 6.98 7.02 7.05 7.05 7.08 7.09 7.12 7.12 7.15

Initial interest rate (%) 7.34 6.91 6.99 7.15 7.13 7.27 7.45 6.89 7.50 7.15 7.09 7.39 6.75 6.95 7.39 7.59 6.95 7.82 6.99 6.96

Default variable/ roll rate (%) 6.19 6.37 7.05 6.47 6.59 6.63 6.75 6.74 6.46 6.68 6.69 6.79 7.05 6.77 7.59 6.74 6.54 6.79 7.09 7.12

Monthly repayment $1,821.54 $1,752.62 $1,765.35 $1,790.94 $1,787.73 $1,810.24 $1,839.35 $1,749.44 $1,847.48 $1,790.94 $1,781.33 $1,829.63 $1,727.28 $1,758.98 $1,829.63 $1,862.14 $1,758.98 $1,899.83 $1,765.35 $1,760.57

Information correct as of 16/09/2010. Comparison rate based on a loan of $250,000. The information in the table applies to new loans only, and may not be relevant to existing loans. DEF not included. Source: Your Mortgage


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One year on What a difference a year makes… or not. Australian Broker reflects on the punditry, breaking news and influential trends that made headlines in the magazine 12 months ago

Issue: Australian Broker issue 6.19 Headline: Facebook success for brokers (page 13) What we reported: Social media networks made it into the limelight when we reported on how two Aussie brokers arranged a mortgage for a borrower via their Facebook page. Serge Scekic and Jim Sharif initially set up their Aussie Dee Why Facebook page to tell family back in Serbia about their business, but when a customer sent them a “friend request” and enquired about their services, the social networking site became a useful business tool. Scekic said w it had been quick, convenient and easy for both him and the customer. What has happened since? A Nielsen report has revealed Australians now spend more time per month on social networking sites than any other country in the world. Facebook has more than eight million users in Australia and is the second most-visited site in the country behind Google. Due to its popularity, Facebook has become an important business tool for brokers, and is increasingly being used to generate new business and engage with current and potential clients. For instance, Scott Beattie, a BDM at Cube Home Loans in Brisbane, recently told us he thinks using social media can be useful for small outfits. “I have written loans for contacts I’ve made

via Facebook. We’ve also used it for web-only special offers: we’ve already done a special discount on insurance, and are considering an offer where we’ll waive the bank application fee if you come via Facebook.”

Headline: Interest in home ownership rising: Homeloans (page 19) What we reported: A national survey conducted by listed mortgage manager Homeloans revealed that one in six Australians was considering buying a new house during the coming year. Homeloans national marketing manager Will Keall said at the time that interest from the first homebuyer market was high, “representing 52% of those looking to buy in the next 12 months.” What has happened since? Housing affordability has worsened over the past year and first homebuyers are finding it more difficult to enter the property market, according to the 2010 Bankwest First Time Home Buyer Report. The survey revealed that first homebuyers would need 4.5 years to save for a house deposit, up from 3.7 years last year. A recent Bankwest/MFAA Home Finance Index revealed that one-inthree Gen Y Australian’s believe they will be permanently locked out of the property market and have resigned themselves to a life of renting. The report also showed more than half of Gen Y’s have put their plans to buy a house on hold, fearing the amount of debt they would need to carry in order to afford a property.

Headline:Melbourne trumps Sydney’s growth (page 19) What we reported: Melbourne properties experienced huge growth in the first seven months of last year, with median prices jumping by 8.5% to $454,525, according to RP Data-Rismark International’s Home Value Index at the time. Property growth in Sydney was slower, with the median price increasing by 6.64% during the same period. Meanwhile, Darwin was the best performing capital city, experiencing a 10.8% growth in value over the first seven months of 2009 and recording the highest gross rental yield of 6.4% for houses and 6.2% for units. What has happened since? Australian capital city home values experienced their first negative movement in 17 months in June with a 1% fall, before stabilizing in July with a seasonally-adjusted increase of 0.4%, according to the RP Data-Rismark Home Value Index. Sydney, with its growth of 0.3% in the three-month period to July, performed better than Melbourne, which recorded a loss of 1.1% for the same period. July median house prices for Sydney and Melbourne were $520,000 and $476,000 respectively. Darwin was the best performing capital city in the three months to July of this year, with home values up 1.1% and the median house price sitting at $480,000.

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Feature OFF THE CUFF

Higgins named top broker… again

M Mark Hewitt

General manager – sales and operations, AFG

What was the last book you read? I am hooked on the Jack Reacher series of books by Lee Child. If you did not live in Australia, where would you live and why? I think we’re so lucky to be living in this country – but for the sake of an answer, New York has always appealed to me. If you could sit down to lunch with anyone you like, who would it be? Emperor Qin, the first emperor of unified China and the man responsible for the Great Wall and the Terracotta Army. What was the first job you ever had? Brickies labourer during the school holidays. What do you do to unwind? I like to exercise every day if I can. I mix it up with a bit of running, swimming, bike riding and a few weights. What’s the most extravagant gift you ever bought yourself? One day I would like to get involved in a decent racehorse with some mates. What CD is currently playing in your car stereo? I have rediscovered American Idiot by Green Day, it would make a fantastic rock opera. Bon Jovi has also been getting a workout in readiness for their concert tour later this year. If you could give anyone starting out in business one piece of advice, what would it be? Observing the basics like being polite, doing what you say you are going to do and returning people’s calls will get you further than you might think. If I was not working in the mortgage industry, I would like to be...? A sports journalist. Where was the last place you went on holiday? Recently, a few of us extended on after the AFG National Conference in Beijing and went down to see the Terracotta Army and checked out the World Expo in Shanghai.

PA has released its Top 100 Brokers list for 2010 and Mortgage Choice broker Wendy Higgins has topped the list for the second year running. Based in South Australia, Higgins settled $141,344,304 in home loans to be crowned Australia’s top mortgage broker. Higgins believes her success as a broker comes from “being able to get the appropriate finance approved for all clients.” She said getting the right finance is an integral part of buying a home or investment property, as is looking at clients’ long-term needs, something she always builds into her recommendations. The GFC, and the impact it had on business, made the last financial year a challenging one, with Huw Bough, general manager of Westpac’s Mortgage Broker Distribution, stating that “a continually changing economy and market environment had its impact.” “Turning around declined applications so they are approved and keeping staff motivated and positive during the tougher months was a challenge,” claims Higgins. But Bough believes that “top brokers have the ability to perform through the most difficult times,” and the brokers at the top end of this year’s list can attest to that. Four of this year’s Top 10 brokers also featured in the top ranks 12 months ago, while Alex Shumsky from Consolidated FS has jumped a huge 52 places to move into 10th position. Justin Doobov of Intelligent Finance settled $116,923,796 in home loans to secure second place. He said going the extra mile for every client is what has made him so successful. “We take the time to listen to what our clients require and build them

a financial structure that satisfies not only current needs, but future needs as well.” Australian Property Finance broker Greg Sterland was one of three new entries to make the Top 10 this year, settling $102,030,613 in home loans to gain fourth place. Sterland attributes his success to his high level of professionalism and says that “if you don’t have a genuine desire to help people, you can’t succeed in this industry.” Nick Caple of Choice Capital says that a shortage of lenders in the market over the last financial year has meant that “more experienced and professional mortgage brokers are more highly valued and sought after.” Caple featured in 9th position and settled $87,495,948, and believes that obtaining product knowledge is a vital component of successful mortgage broking. Bough says that brokers play a very important role of trusted and independent advocate for consumers. The ongoing recognition of those professional brokers at the frontline of the industry will ensure the industry’s continued evolution. “Only through benchmarking the industry’s top performers can we establish best practice that we can all aspire to,” he said.

Wendy Higgins


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People Smartline fund to sponsor communities

Mortgage Choice goes ‘beyond cancer’

Brian Hocking

A

$75,000-a-year fund has been established by Smartline to assist with local club and community sponsorships. Available to its 200-plus franchisees nationally, the program will provide up to one-third of the cost of a franchisee’s community sponsorships, in an effort to broaden the brokerage’s support for local communities. The move follows the group’s announcement only weeks ago that it had passed a charity milestone – having raised a total of $500,000 since 2002 by generating a donation of $10 from each loan settled by its franchisees. Smartline managing director Chris Acret said the personal involvement of franchisees in the nominated club or organisation that would be receiving the new sponsorship dollars was crucial to the program. “Our experience has shown that it is a much more mutually beneficial relationship if the

franchisee has a personal involvement with the sponsored organisation,” Acret said in a statement. “The funds are always appreciated but we think it’s important that the franchisees are involved ‘on the ground’ with the groups they support.” Smartline Footscray West franchisee Brian Hocking, for example, is using funds from the community support program to boost his sponsorship of the Sunshine Football Club, where he is a former player, coach and committee member. Hocking supports the club with $6,500 each year, which includes general sponsorship and a ladies day function, although he plans to use the additional funding to help the club buy new jumpers for a junior team. “The club is extremely appreciative of the support and it’s great to be involved with an organisation which is such an important part of the western suburbs community,” he said.

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ortgage broker Mortgage Choice was pleased to further its support of Cancer Council NSW by hosting a second ‘Working Beyond Cancer Workshop’ in Sydney in September. The one-day workshop, held at the company’s head office in North Sydney, was open to cancer patients, survivors, carers, employers and work colleagues. It was the second in a series that Mortgage Choice is funding. The mortgage broking group became involved after one of its staff members survived breast cancer. The workshops have been designed to educate and encourage people recovering from cancer who are keen to return to work yet are unsure of their rights, or how to deal with the transition back into the workforce. Their supporters and carers also benefit greatly from the

McDonald scores goal with Port Finance

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ictorian aggregator Port Finance Group has set its sights on reaching 100 brokers, after rapid growth saw the boutique start-up grow its distribution by 25 brokers over the last 18 months. The business, which subaggregates under Choice, started in Melbourne with two brokers, and has expanded to 27 brokers by offering a choice of a flat fee or commission-based pricing structure.

The success has been spearheaded by former AFL footballer Anthony McDonald, who is now a Port Group director. Having quit Melbourne Football Club and the game in 2002 after injury problems, McDonald’s ability to adapt to change – along with his team skills and perseverance – has helped the group kick goals on its path to growth. Recently, Port was successful in being named Choice’s ‘Year-on-

wealth of information and stories shared on the day. The first event was a success with 39 attendees, the majority of whom were aged below 50. This time around the event was just as popular and, again, the majority were Generation X. Annie Miller, Cancer Council NSW project coordinator for community education programs, feels the workshops are the result of a great partnership and that all who experienced them have really benefited. “Some feedback I received went like this: ‘The whole day was excellent; I really learnt something out of each session and learnt about so many things I wasn’t expecting to’, which reflects the success of a workshop that appeals to a diverse range of people”. She said with planning in place for 2011 and as word of mouth continues to spread, future workshops will “hopefully be even more successful.” Year growth – Business of the Year 2010’. McDonald said the group’s directors – which include Voula Cotsiras and Andrew Baker – were a mini-team that aimed to help broking businesses grow. And if the last year is anything to go by, further growth is on the agenda. Based in Melbourne, McDonald said the group has national ambitions, and is currently in the process of talking to brokers in NSW as it seeks to expand from its Victorian base. Send your people news to the editor, ben.abbott@keymedia.com.au

Anthony McDonald


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Caught on camera The mortgage industry turned out in style for the ninth Australian Mortgage Awards (AMAs), where the best brokers were recognised for a year of hard work – as well as being treated to a black-tie gourmet dinner, free-flowing wine and a Friday night of superb entertainment Photography by Simon Kerslake, and Hellene Algie


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Insider

Got any juicy gossip, or a funny story that you’d like to share with Insider? Drop us a line at insider@ausbroker.com

multiples have come from two different sources: UBS for the Australian figures, and Demographia for the rest of the world. If you use the Demographia figures for Australia, the figures come out at closer to eight to nine times income. Assuming there’s no compelling explanation for the decision, that’s a big ‘oops’ for CBA. Admittedly, questions over whether Australia is in a housing bubble go back and forth and back and forth, with little consensus – and the doomsayers often don’t help their cause. However, apparent manipulation of figures like this isn’t exactly going to convince anyone that the Australian property market is as robust as it appears, either.

Safe from summer smash

T The ABC... and D of broking

B

rokers can forgive themselves for being a little confused by the NCCP application process – indeed, at times it seems even those in the know are having to clarify their assumptions. Following the odd mistake from industry (which Australian Broker deemed fit to report on some time ago), the MFAA, courtesy of the industry’s legal best-friends Gadens Lawyers, put out a clarification for members. For those still catching up, in short, here are the highlights: directors and employees of a licensee (labelled A by the MFAA) are automatically authorised. However, those of all entities ‘B’ (company credit representatives) need to be either sub-authorised by B with A’s consent, or directly appointed by A. Meanwhile, meet C (a natural person – that’s you and me – and let’s skip the common law definition of an ‘unnatural person’), who operates as a credit rep (CR) of A, and if a director or employee of B (and the person has been sub-authorised by B rather than being appointed directly), will be covered by B’s EDR. Confused yet? If not, bring company ‘D’ into the mix. Apparently D needs its own external dispute resolution (EDR), while D’s directors and employees

will need to be sub-authorised by D with the consent of A, or appointed as a credit rep direct by  D. It’s all as simple as ABC really. Thankfully – for Insider’s sake – MFAA/Gadens included a diagram!

Analyse this

C

ommonwealth Bank’s recent ‘there’s not a bubble’ presentation has got the prophets of doom all a-quiver. If you haven’t seen it, CBA has been shopping around a presentation to international investors designed to quell fears that the Australian housing market is about to go pop. The presentation hinges on the argument that concerns about a bubble are “often based on superficial or incomplete research on the domestic market”, and CBA rolls out a number of statistics to prove it – including employment figures, migration figures and multiples of median house prices to incomes (which it says are comparable to coastal cities globally at a ratio of between four to six times income). It’s this last slide that one of Australia’s biggest bubblewatchers, Kris Sayce, takes issue with. He points out that the price-income

here’s nothing that Insider likes more – once the Australian summer really starts to heat up – than lathering up in a few coats of sunscreen, putting on a pair of ageing budgie-smugglers (overstretched elastic, courtesy of summer BBQs and beer), and piling into the car for a trip to the closest beach. However, thanks to the economy – still languishing in the doldrums globally – there might be a slight change to the scenery Insider has come to expect along the way. That is – he’s been informed there is likely to be a few inches less eye candy. That’s if you believe the hemline index, which is based on the idea that there is a correlation between the hemlines of women’s dresses, and the state of economic performance. That’s right – as the economy improves, hemlines go up. Think 1960s miniskirts. As economic fortunes decline (often marked by the phrases such as ‘financial crisis’ and ‘double-dip’), hemlines plummet. Well, with the global economy still struggling to get the wheels of growth moving again, hemlines are predicted to trend down this summer – way

Boom or bust?

down. Though derided, the theory at the same time seems to have a close following – thankfully the penetrating stares of bankers confronted with passing examples of the latest women’s fashions can now be safely explained as ‘research’. While the prediction may tinge the upcoming summer with a slightly more conservative edge, Insider thinks the news might be just as well. In another piece of research from a UK insurance company in 2009, it was found that men’s car accident rates rise along with women’s summer hemlines. The study by Sheilas’ Wheels (that’s the insurance company) found 29% of men admitted to being distracted by increases in the amount of flesh on show during warmer months. There is even a term for the phenomenon – the summer smash. Either way, Insider will be keeping his eyes on the road this summer.

Happiness for… $82k a year

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hey say money can’t buy happiness. Well, it seems that’s not exactly true. You can buy happiness – to an extent, anyway – and it’ll cost you the princely sum of $82,000 a year. That’s the finding of research from two Princeton University economists, Angus Deaton and Daniel Kahenman. They reviewed surveys of 450,000 Americans who had been asked questions on their happiness and their overall life satisfaction. It seems that, as income increases, day-to-day happiness actually does improve – but the effect levels out at $75,000 (US dollars, $82,000 on this side of the Pacific). Deaton attributes the effect on the difficulties of making ends meet with a lower salary. “Stuff is so in your face it’s hard to be happy,” he told Associated Press. “It interferes with your enjoyment.” That’s not a reason to cap all salaries though. While daily happiness levels off at this point, people’s overall sense of wellbeing and success increases as earnings grow. So, there’s still a reason to keep pushing for that pay rise!


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Services

Receive breaking news updates direct to your inbox. Sign-up for the FREE e-newsletter at www.brokernews.com.au AGGREGATOR / WHOLESALE BROKER PLAN Australia 1300 78 78 14 www.planaustralia.com.au mail@planaustralia.com.au page 5 BUSINESS FINANCE Bibby Financial 1300 850 322 www.bibby.com.au marketing@bibby.com.au page 13 COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au page 9 INSURANCE AMP Bank 13 30 30 www.amp.com.au/banking info@ampbanking.com.au page 7

Liberty Financial 13 11 80 www.liberty.com.au page 3

OTHER SERVICES RP Data www.rpdata.com page 29

MKM Capital 1300 762 151 www.mkmcapital.com.au page 2

Trailerhomes 0417 392 132 page 30

Provident Capital 1800 668 008 www.providentcapital.com.au broker@providentcapital.com.au page 4 MORTGAGE MANAGER / NON-BANK National Finance Club 1300 327 600 www.nationalfinanceclub.com.au info@nationalfinanceclub.com.au page 35 Vault Mortgage Corporation 1300 798 676 www.vaultmortgage.com.au page 10

Life Broker 1300 304 964 www.lifebroker.com.au page 15

NON-BANK LENDER Hemisphere Financial Services 1300 793 742 www.hemispherefs.com.au

LENDER Citibank Mortgages 1300 651 059 www.mortgagebroker.citibank.com.au page 36

NON-CONFORMING Pepper Homeloans 1800 737 737 www.pepperonline.com.au page 12

ING Direct introducer.ingdirect.com.au pages 16 & 17

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SHORT TERM LENDER Interim Finance 02 9971 6650 www.interimfinance.com.au page 6 Mango Media 02 9555 7073 www.mangomedia.com.au page 1 NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au pages 8 & 11 WHOLESALE Resimac 1300 764 447 www.resimac.com.au newbusiness@resimac.com.au page 19

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Australian Broker magazine Issue 7.19