Australian Broker 11.12

JUNE 2014 ISSUE 11.12

$4.95 POST APPROVED PP255003/06906

+INSIDE + NEWS A look at what’s been making headlines P4

+ ANALYSIS HOLDING THE LINE What aggregators are doing to fight for your commissions P12

+ BUSINESS

INTELLIGENCE

SURVIVING CRISIS A business leader shares his inspiring story P16

+ OPINION LOOK BEFORE YOU LEND

Pay attention to credit scoring before you offer clients options P20

+ COALFACE THE BILLION DOLLAR BROKER

Ray Hair: MANDATE TO GROW Mortgage industry veteran Ray Hair has joined Homeloans, and says his mandate is to see the non-bank make significant inroads in market share

R

ay Hair is a fixture in the mortgage industry; a well-respected industry veteran who’s been around mortgage broking from its early days.

That’s why his recent hire by Homeloans Ltd seemed like such a coup. And Hair says he’s thrilled to be back on the front lines.

FULL STORY PAGE 18

An NZ broker has become the country’s first to hit a major milestone P21

+ PEOPLE RUNNING THE GOOD RACE

Westpac’s team prepares to compete on the world stage P28

+ CAUGHT ON CAMERA NMB’S ANNUAL CONFERENCE P29

NEWS 2

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NUMBER CRUNCHING

BUDGET BLUES

HOUSE PRICE CHANGE FOR THE MARCH QUARTER

How consumers expect their financial situation to change after the Federal Budget

FAST FACT

Darwin: 1.6% to $620,000

Brisbane: 1.1% to $460,000

39.4% Perth: 1.6% to $540,000 Proportion of April finance commitments investors accounted for

I’ll be worse off

Source: ABS

Unchanged

Adelaide: 0.9% to $413,750 Melbourne: 3.7% to $652,500

Median house prices up Median house prices down

I’ll be better off

Sydney: 3.1% to $782,973

Canberra: 1.5% to $520,000

Hobart: 4.1% to $385,000

Source: ME Bank

Source: Bendigo Bank/REIA

WHAT THEY SAID...

GREG MEDCRAFT

“Our proactive surveillance will substantially reduce across the sectors we regulate, and in some cases stop” P6

MARK HARON

“It’s time for big aggregators like Connective to step up and make sure that those commissions that they took away when things got tight can come back the other way now that there’s a bit of room for them to move” P12

STEPHEN MOORE

“What we’re finding is there’s quite a shift in broker expectations. What was about software and maybe a bit of technical support, the key trend and shift is toward a business management focus” P14

MARK WOOLNOUGH

“[Consumers are] going to their advisers now looking for some real guidance and real support, not just a transactional conversation” P26

NEWS 4

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No change for Stargate despite acquisition ■ It will be business as usual

for an Australian mortgage technology company that just got snapped up by a bigger fish.

Stargate Information Systems CEO Brett Spencer said nothing will change structurally within his company, although it was bought by Australia’s largest financial services software group, Rubik Financial, on 3 June.

“There’s no change; it is business as usual. Same staff, same offices, same address, same name,” said Spencer, who has been appointed as managing director of Rubik’s mortgage section.

“Rubik has aligned visions, industry credibility, is in the financial services space and provides good service to the industry. So we thought it would be a good choice to take Stargate to the next Brett Spencer level.”

Rubik bought Stargate for $20m up front, with a further payment of up to $15m to be made if earnings remain above $3.2m in the 2015 and 2016 financial years. Rubik also entered into a binding agreement to acquire software provider Infinitive for an upfront payment of $2.4m and up to $14.1m more over the next 18 months, subject to increased revenue.

YOUR TRAIL BOOK JUST GOT MORE VALUABLE ■ A mergers and acquisitions firm’s half-yearly price gauge has

registered a big jump in value for mortgage books.

Radar Results six-monthly price guide – based on market activity across mortgage, accounting, and financial planning books – shows buyers will pay 1.7x to 2.2x the mortgage trail.

This is up from 1.5x to 1.9x in the previous six months.

Since November last year, the change in the price range has been evident in only two sectors – corporate super clients, which continues to fall, and mortgage clients, which continues to rise – says Radar Results principal John Birt.

“The multiple for trails on mortgage clients has increased again due to the demand for this style of client by buyers and the cross-selling opportunity associated with younger clients.”

However, risk books still command the greatest price, at 3.0x to 3.8x the trail.

EDITOR Adam Smith PUBLISHER Simon Kerslake COPY & FEATURES JOURNALIST Calida Smylie PRODUCTION EDITORS Roslyn Meredith, Moira Daniels ART & PRODUCTION DESIGN MANAGER Daniel Williams DESIGNER Loiza Caguiat SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak MARKETING EXECUTIVE Alex Carr TRAFFIC MANAGER Abby Cayanan

Phil Naylor CORPORATE CHIEF EXECUTIVE OFFICER Mike Shipley

COMPETITION THE KEY TO ENDING ONEROUS LENDER PROVISIONS ■ MFAA CEO Phil Naylor recently

told the Independent Finance Brokers Forum that increased competition among lenders could be the panacea for some of the provisions placed on brokers.

“With clawbacks and some of the issues with lenders, a lot of these things happen because they can. My argument is if we have a more competitive market you’re going to be less likely to see those restrictive, difficult policies coming out,” Naylor said.

Naylor argued that, in spite of lenders competing hard for broker and borrower business, the variety of lenders competing was still at a lower level than prior to the GFC. “There has to be something done about the lack of competition in the lending market. I know the major lenders say they do compete, but they essentially compete amongst themselves. We haven’t got the level of competition we had pre-GFC,” he said.

Competition, Naylor said, would not only benefit consumers but also ease some of the burdens lenders are currently able to place on brokers.

CHIEF OPERATING OFFICER George Walmsley MANAGING DIRECTOR Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil Editorial enquiries Adam Smith tel: +61 2 8437 4792 adam.smith@keymedia.com.au Advertising sales Simon Kerslake tel: +61 2 8437 4786 simon.kerslake@keymedia.com.au Rajan Khatak tel: +61 2 8437 4772 rajan.khatak@keymedia.com.au Subscriptions tel: +61 2 8437 4731 fax: +61 2 9439 4599 subscriptions@keymedia.com.au Key Media keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Auckland, Toronto, Denver, Manila brokernews.com.au Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss.

Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008.

The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.

NEWS

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Slashed budget could halt ASIC surveillance

WORLD NEWS UNITED STATES OF AMERICA MILLENNIALS PLAN ON ASKING PARENTS FOR DEPOSIT

Australian millennials aren’t the only ones relying on mum and dad to help them get a foothold in the housing market. About half of American millennials looking for homes have to go to their parents for help, according to a new study by Trulia. Debt, poor credit and a lack of savings were the chief reasons millennials were unable to come up with their own down payments, the survey reported.

Among those for whom loans from parents aren’t an option, 37% plan to work a second job, while 22% said they would use state or federal programs to help them into home ownership. What many of them wouldn’t do, however, was give up certain luxury items in order to save for a down payment. While the 65% who said they wouldn’t give up their cars could argue for the necessity of having transportation, other items named were a bit less vital.

■ A severely reduced operating budget for ASIC

BY THE NUMBERS

64%

PRIORITIES …

Items millennials would never give up to save for a down payment:

CAR: 65% SMARTPHONE: 45% CABLE: 20% NETFLIX SUBSCRIPTION: 15% VACATIONS: 14%

CLOTHES SHOPPING: 10% ORGANIC SHOPPING: 10% GYM MEMBERSHIP: 7% A MORNING LATTE OR CAPPUCCINO: 5%

Newly released statistics show almost 64% of all bank lending is for housing Source: APRA

will mean its surveillance of certain sectors, including consumer credit, will substantially reduce and in some cases stop altogether.

The federal government will slash ASIC’s budget by around $120m over four years, with $44m or around 12% cut from its operating budget in the 2014/15 financial year.

Average staffing levels must reduce by 209 to 1,573 workers, and ASIC is already conducting a voluntary redundancy campaign, ASIC chairman Greg Medcraft recently told the Senate Estimates Committee.

However, the reduced budget will mean reduced surveillance of certain sectors, he said.

“Our proactive surveillance will substantially reduce across the sectors we regulate, and in some cases stop.”

Medcraft said “for obvious reasons” ASIC would not identify sectors where there will be no proactive surveillance from now on.

But he said there would be reduced proactive surveillance for the deposit-taking, credit and insurance consumer sector.

“We will rely more on the intelligence we get from misconduct reports and the complaints we receive.

We will limit our risk-based approach to focus on those entities or activities that have the greatest market impact.

“Where we do find that someone has intentionally broken the law, we will continue to do the best we can to ensure that the consequences are severe.”

EATING OUT/TAKEOUT: 13% Source: Trulia

Greg Medcraft

NEWS

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Bank CEO slams cash-back ‘sweeteners’

Banks reining in risky lending

■ The Reserve Bank of Australia may not be keen to force a

macroprudential toolkit on lenders, but it seems the banks are taking it upon themselves to make sure they do not toe the high-risk lending line.

New research has shown banks are offering fewer home loans to buyers with deposits of less than 5%, hinting that lenders are becoming more wary of high-risk mortgages.

Financial comparison website RateCity said the share of loans in its 3,000-strong product database with a maximum LVR of 95% or above has fallen from 73% in August last year to 69%.

Banks that recently cut maximum LVR ratios below 95% for certain loans included ANZ, Bankwest, Bendigo and Adelaide Bank, and HSBC. RateCity CEO Alex Parsons said the figures suggested banks were reverting to the more cautious approach seen in the few years before 2013, when LVRs spiked.

Last month Suncorp Bank also said it had significantly cut back on writing home loans with LVRs above 95% to protect itself against ‘‘inevitable” rises in interest rates.

While APRA recently warned banks against taking on too much risk – and hinted that macroprudential tools may be needed to put brakes on the market – the RBA’s head of financial stability, Dr Luci Ellis, recently said there would be no caps put in place to rein in riskier lending anytime soon.

LAWYERS WARN OF SMSF DANGER

■ A bank chief executive has taken a dig at other

FAST FACT

-0.1% The new cash rate set by the European Central Bank Source: ECB

lenders offering money back for new and returning customers as a ‘sweetener’.

With overall credit growth remaining low, the pressure is on many banks to meet their own credit growth expectations, and some have been offering cash-back sweeteners to win favour with customers, ME Bank CEO Jamie McPhee said.

“Cash-back sweeteners can be nice in the short term, but customers should understand they can save much more on their home loan in the long term by locking in a lower rate.”

Lenders which have recently announced $1,000 cash-back deals for new or returning customers include CBA, St.George, Bank of Melbourne, and BankSA. CUA is offering cash-back of $500.

While ME Bank will not offer this ‘sweetener’, McPhee announced the lender had cut its one- and five-year fixed interest rates for standard home loans.

He said the cost of fixed-rate funding had been falling as global economic weaknesses have persisted, local economic growth has remained below average, the transition to non-mining activity has continued, and expectations have grown for some fiscal contraction from the budget.

“Fixed-rate funding costs are falling as the market pushes out expectations for future RBA rate movements. ME Bank has taken advantage of these falls and is passing on the savings to customers.”

■ Lawyers are warning there is a new danger for SMSFs with zero

interest related-party loans.

A number of recent private binding rulings released by the ATO to do with limited recourse borrowing arrangements (LRBA) related-party loans appear to have dire tax implications if they are found to have uncommercial loan terms, Townsends Lawyers warns.

Of most concern is the ATO’s warning that income generated from an LRBA may be considered as ‘non-arm’s length’ income if the terms of the loan require a greater amount of returns to the SMSF than what might otherwise be expected if it was dealing with a lender at arm’s length.

There are tax implications for such a decision.

By deeming the income from such arrangements to be special income, a significant tax rate of 45% – plus possibly the new high earners ‘levy’ – would be applied to all rental income, dividends, interest and capital gains or losses derived from the asset, the lawyers said.

This has the potential for a significant tax bill for the SMSF and potentially calls into question whether the trustees have acted in the best interest of the members by entering into such a loan agreement.

Jamie McPhee

BIG IDEA 10

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Valuation options and tools to support your future deals RP Data’s business products expert Chris Spanos guides brokers and agents on getting the best out of the myriad of valuation options

OWNERS OVERESTIMATING Research has found half of the selfassessed average home valuations provided by owners fall within 11% of the average market value across postcodes, but one-quarter of postcodes provide valuations that are more than 20% away from the average market value.

A

s a mortgage broker looking to secure the best deal for your clients, you are constantly juggling numerous moving components from multiple lenders. One of the elements of any successful deal is the valuation, which must support the contract of sale price or the customer’s estimate when refinancing.

While most brokers know what a valuation is, many may be unaware of the different types of valuation products available. The type of valuation required is often dependent upon a lender’s risk policies. Knowing the features of a valuation product can help you manage client expectations and engage more constructively with valuers.

There are four types of residential valuations most commonly used:

FULL VALUATIONS, OFTEN REFERRED TO AS SHORT FORMS

A full valuation is the industry gold standard and requires an internal and external inspection of the subject property. A full valuation can usually support loans above an LVR of 90% (LMI is often required above 80%), takes between 2-3 days to complete if there are no access difficulties, offers lenders professional indemnity insurance (PII) for the valuation, and costs approximately $220 for a standard property.

DESKTOP VALUATIONS

Desktop valuations, such as RP Data’s EVR product, the industry’s leading desktop valuation facility, value a property without an internal or external valuation. Qualified valuers are given subject property data, including attributes and photos, together with comparable sales which they can edit, to value a property at their ‘desktop’ with a clear audit trail. EVRs can support loans up to an LVR of 80%, take under a day to complete, offer no PII and cost between $100 and $120.

KERBSIDE VALUATIONS

A kerbside requires a qualified valuer to externally sight the subject property from the street and provide a value range.

Kerbsides generally have no audit trail (their biggest difference to an EVR), support loans up to an LVR of 80%, are completed within a day, provide no PII to lenders and cost between $100 and $120.

AUTOMATED VALUATION MODELS OR AVMs

These computer-generated estimates don’t

Source: RBA

require a valuer’s input, A computer model accesses attribute data and recent comparable sales data to produce an estimate. These can include a report which provides an audit trail, are used differently depending upon a lender’s risk policy, are provided instantly with no PII and cost between $10 and $50 depending upon report features and channel volumes.

There are other valuation types, such as progress inspections and vacant land valuations, but we will leave these rarer products for another day (likewise, we will not discuss commercial valuations).

Another factor to remember is that many lenders have outsourced management of their valuations to a third party like RP Data and its ValEx platform. This means that brokers will often contact ValEx when querying a valuation’s status or outcome, not the lender. In all of these discussions, ValEx is a conduit – they do not perform the valuations themselves.

Michael Hooper, RP Data’s head of client operations, notes that “to assist brokers RP Data developed an Online Status Enquiry Tool. This tool allows third parties without access to the ValEx platform, such as brokers, to view and track the status of their valuation request and/or lodge a query.”

The tool requires no login and can be used to provide additional information to assist with the valuation process. All that you need is the borrower’s surname and either the lender’s valuation reference number or the ValEx ID number. The Online Status Enquiry Tool can be accessed at valstatus. valex.com.au.

In closing, when dealing with clients who know little about the valuation process, my best advice is to arm them with information to position yourselves as the property expert and manage their expectations regarding delays, the process and costs.

LITIGATION A ‘WAKE-UP CALL’ FOR VALUERS A shift in the banking sector is prompting the bar to be raised for increased rigour around the valuations demanded by lenders.

Western Australia valuations firm Herron Todd White has been building up its quality assurance team in the wake of a number of recent legal cases involving GFC valuations.

Other valuation firms that do not ramp up their quality assurance measures will struggle to compete with growing demands from banks for greater rigour – and if they fail to change, may find bank panels closed to them, the firm said.

HTW WA quality, training and development manager Stephen Miller – who until recently worked in risk management with Bankwest – warned increased litigation has meant it is more important to manage risk within valuation firms.

“Banks are requiring quality assurance of valuation reports and they are looking for greater internal risk management around valuations at the valuer’s end,” he said.

“The valuers who are managing risk and improving quality will survive and will continue to be appointed to large bank panels, but the valuers who don’t address that requirement will find their opportunities for bank panel appointment will be impacted and possibly diminish.”

With rising fees for professional indemnity insurance for valuers – and a recent spate of legal action against valuers in Australia and abroad – Miller said the lending and insurance sector were “acutely aware” of the risks of inaccuracy.

“It’s been a wake-up call and another driver for banks, lenders and valuation companies to understand the need for rigour around risk management control,” he said.

ANALYSIS 12

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Fighting for your crust What aggregators are doing to fight for your commissions

C

ommissions are a sensitive subject in the mortgage broking industry, and with good reason. Brokers work hard, and expect to be compensated fairly for the work they do.

Any move to hit their hip pocket is understandably greeted with anger. Meanwhile, they’ve watched as commissions have been eroded by lenders, clawbacks have been extended and FOFA-style threats have been whispered about the future of commissions altogether.

So what are aggregators doing to help?

Connective principal Mark Haron, Outsource Financial CEO Tanya Sale and Vow Financial national sales manager Leighton King recently took part in a panel discussion with the Independent Finance Brokers Forum. The three offered different perspectives on broker commissions, and what aggregators should be doing to stand up for their brokers.

Sale told the gathering that Outsource was focused on working with lenders to improve their service to brokers, rather than focusing on commission payments.

“I meet with lenders every quarter to go over quality. For us it’s about submission quality. It’s about their quality and what they deliver to our writers in regards to the turnaround, in regards to the service, or a BDM that just wants to take our brokers out to say ‘how are you going?’ We’re not interested in that. We don’t want them to buy our brokers coffee or tea or lunch or drinks. What we want is them to assist in their business. The better deal has to be about improving your business,” Sale said.

Sale argued that better turnarounds and better service from lenders would ultimately lead to better volumes for brokers, without placing undue emphasis on commissions.

“It can’t necessarily be just going in and trying to get a better deal on commission. I get tired of hearing about commission because the income will flow if you have a very strong and multi-faceted business, and you need the lenders to provide that to you at the back end,” she said.

Haron agreed that aggregators should work to improve the way lenders deal with brokers, and said he meets regularly with lenders to discuss their processes, areas where they may be falling behind in their service to brokers and ways to address these problems. But Haron said he was comfortable advocating for commissions as well.

“Quite often I’ll go one step forward and I do talk to them about commissions. Some of the lenders, their commission payments are an issue. We’ve been in discussions with a couple of major banks recently, and we hope to have trail in year one reinstated, and having some of those discussions it helps that brokers hold a lot of power. Now that the margins have moved back into the home loan space a bit more it’s certainly time for big aggregators like Connective to step up and make sure that those commissions they took away when things got tight can now come back the other way now that there’s a bit of room for them to move,” Haron said.

CONFLICTS OF INTEREST

For Haron, the sticky issue isn’t so much commissions in general; it’s lender and aggregator inducements that could be causing conflicts of interest. Haron took particular aim at bank-owned aggregators pushing their own products, saying the resulting conflict of interest could have serious ramifications for the industry.

Haron said some bank-owned lenders are pushing their parent companies’ products on their broker networks.

“We have lenders that own aggregators and they’re pushing their own products through that aggregator to the point where they’re conflicting the broker and creating a situation where they’re giving that broker reduced aggregation fees or no aggregation fees for writing more of that particular owner’s business,” he said.

Haron said so long as products met the NCCP’s not unsuitable test and the broker disclosed potential conflicts of interest to clients, this was unlikely to cause problems. But he argued that many brokers are not effectively disclosing such conflicts.

“If that broker doesn’t disclose it effectively, that’s a breach of the NCCP. Disclosures of conflict of interest are a huge issue in the industry,” he said.

If potential conflicts of interest are not adequately disclosed, Haron said the mortgage broking industry could find itself subject to the same fate as the financial planning industry.

“We’ve gone to all this hard work to get lenders to pay more commissions, but there are a few brokers in this industry not disclosing conflicts of interest effectively, they’ll come in and they’ll do exactly what they did with financial planning. They’ll take the commissions away because they’ll say, ‘We can’t

I GET TIRED OF HEARING ABOUT COMMISSION BECAUSE THE INCOME WILL FLOW IF YOU HAVE A VERY STRONG AND MULTIFACETED BUSINESS – TANYA SALE

IT’S TIME FOR BIG AGGREGATORS LIKE CONNECTIVE TO STEP UP AND MAKE SURE THAT THOSE COMMISSIONS THEY TOOK AWAY WHEN THINGS GOT TIGHT CAN COME BACK THE OTHER WAY NOW THAT THERE’S A BIT OF ROOM FOR THEM TO MOVE – MARK HARON

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13

trust you with them.’ The reasons that happened in the financial planning industry are, who owns all the big dealer groups? The major banks. The major insurance companies. It’s all about how they can distribute more of their product,” Haron said.

“You’ve got to look at the aggregators. If that’s what they’re forcing then are they an aggregator or are they a lender?” he added.

Sale questioned whether lender inducements could be defensible. She argued that brokers enticed by lender inducements could be “putting their own necks in the noose”.

“How can you stand up in a court of law when you haven’t used a lender in six months, swore up and down you’d never use them again in your life and then all of a sudden you’re giving them $2m or $3m because you’ve been incentivised to do it? It’s there in black and white. You’d be hanging yourself,” she said.

Haron argued that such inducements could be defended, so long as they were properly and thoroughly disclosed to the client.

“You can sit down with a particular client and say, ‘Look, there’s these three deals. I get this on this one, this on this one and a little more on this one.

Which one do you want?’ If you’ve disclosed it, then you can stand up in court and say you went through that path, the customer looked at all the products, they’re all suitable, they qualify effectively for all of them I disclosed to the customer that I had this further commission relating to this. The issue then becomes brokers saying, ‘How comfortable am I disclosing this? Does it make me look like a real broker?’ ” he said.

TOO MUCH FOCUS?

But Sale said these inducements were again putting too much focus on commissions.

“It comes back to we in this industry not letting commission muddy our waters. We’re now regulated.

We’ve come up about 20 levels in our quality and our professionalism and we bang on about these commissions, commissions, commissions, every single time. We’re muddying the waters, and we don’t want to go back to the old school where you had brokers out there in the old days who would go through the commission schedule before they even met with the borrower and say, ‘I’m going to send it to that lender because I’m going to get more.’ That’s not what this industry is about,” she said.

Sale went so far as to claim that brokers who suddenly began using a lender they had previously shied away from could only be motivated by commission.

“If the product has not changed, you haven’t used them for six months and then you’re using them, it’s commission based,” she said.

But King disagreed. He argued that many times brokers began using a lender because lenders had increased their support of the broker channel, and questioned whether commissions were a significant influence on brokers’ choice of lenders.

“I disagree. I think brokers are above and beyond just doing deals with a particular organisation just because they’re going to get more commission. And let’s face it, the commissions aren’t significantly different either. In my organisation it isn’t an issue.”

As for inducements, King argued that – if they were properly disclosed and the products were well suited to the clients’ needs – it could be a win-win for brokers and borrowers.

“If the broker can support an organisation, make additional money and look after the client as well with good products and good service, then it’s good business as long as you declare it,” he said.

TECHONOLOGY UPDATE

ING DIRECT upgrades to ApplyOnline+

MARK WOOLNOUGH

TONY CARN

ING DIRECT, wholly owned by the banking multinational, ING Group, has a broad spectrum of understanding of technology available across the globe.

So a recent upgrade to ApplyOnline+ for ING DIRECT was a well-informed and simple decision.

“We wanted to provide brokers with the best resources and easiest means to deal with ING DIRECT and upgrading to NextGen.Net’s ApplyOnline+ was the obvious decision,” says Mark Woolnough, Head of Third Party Distribution.

As a branchless bank and given 90 per cent of ING DIRECT’s mortgage production comes through third parties, staying ahead of the game - in terms of technology and broker support - is paramount.

“We always listen to the broker community regarding ways to remove barriers to business growth. Our aim is to make the broker experience seamless and efficient. Upgrading to ApplyOnline+ is beneficial for both brokers and ING DIRECT,” maintains Woolnough.

Referring to the optimum service proposition in which brokers have access to a multitude of lenders on their panel in order to provide the most appropriate mortgage solutions for customers, Woolnough talks of the challenges inherent within this framework.

“One of the issues facing brokers is that they feel they should be competent and up to date with the policies and processes of their entire lender panel. However with so many lenders and the increasing burden / impacts of compliance most will concentrate on a smaller and more manageable panel.”

“ApplyOnline+ has removed many frustrations in the end-to-end process by providing speed, scale and certainty around what meets a

lender’s requirements, irrespective of whether the scenario is simple or complex,” he says.

Praising the ApplyOnline+ features Woolnough singles out the dynamic supporting checklists, which allow the assessment and servicing metrics used by ING DIRECT, and all other lenders, to identify any potential problems with data entry likely to cause a request for new information and reworks.

The serviceability calculations, he says, gives brokers greater confidence and certainty about whether data meets the policy requirements and criteria of the lender. “If it doesn’t, it allows them to pinpoint an area they need to clarify with the customer.”

ApplyOnline+ gives ING DIRECT a rich and comprehensive range of options for brokers, says NextGen.Net Sales Director, Tony Carn. “Not only do they have an upgraded lodgement capability; they also have an ApplyOnline Broker Centre, which the small proportion of brokers who lodge directly to a lender can use.

“ING DIRECT also has a separate variations lodgement module, which is well supported and a great tool for customer retention, making it an easier and clearly defined process for brokers to do variations for existing customers.”

Woolnough is keen to emphasise that this is also an investment to make the bank’s processes faster, simpler and more efficient and “to give brokers the feeling that they are in control of the application process”.

“Often what gets lost in these conversations is that this is a two-way street,” he says. “Sometimes brokers feel that when banks talk about quality it’s a one-way blame game.

“Upgrading to ApplyOnline+ enables lenders to identify areas in their own processes that historically may have contributed to the inefficiencies.”

SPECIAL REPORT 14

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Franchise or wholesale, brokers want more from aggregators Brokers are looking for greater value-adds from aggregation platforms, industry leaders say

F

or brokers, choosing an aggregator used to revolve around things like cost, lending panel and perhaps software platforms. As the industry evolves and becomes more professional, however, these selling points have largely become tickets to play. Industry leaders say brokers are now choosier about the service they receive, and aggregators and franchise systems need to up their game.

Choice Aggregation Services’ CEO Stephen Moore said competition among aggregators and franchise platforms has intensified as brokers begin to demand more value.

“Competition – as it is right across our industry – is certainly fierce, and I think it’s a good thing. It means that it drives you to understand your customer’s needs – and in our case, our customer is our broker – and making sure you’re providing the support that’s specific to their needs,” he said.

The support brokers demand, he said, has shifted from traditional services offered by aggregators to a business-building focus.

“What we’re finding is there’s quite a shift in broker expectations. What was about software and maybe a bit of technical support, the key trend and shift is toward a business management focus: help me grow a more successful business. That’s really the lion’s share of our growth: working with existing members to help them grow their

business. That’s from business planning all the way through to actively managing it with them on an ongoing basis,” Moore said.

Nectar Mortgages CEO Paul Newell agreed. Newell said his company tries to offer brokers a service that helps them build their business into an asset for the future.

FROM A BROKERAGE PERSPECTIVE IT’S BUILDING A BUSINESS. YOU CAN BUILD A TRAIL BOOK, BUT A TRAIL BOOK IS DIFFERENT FROM A BUSINESS - P AUL NEWELL “From a brokerage perspective it’s building a business. You can build a trail book, but a trail book is different from a business. You want to have a solid referral base, and support from the back end to make sure the business is growing. So you’re getting leads from real estate agents, from clients’ relatives, from accountants and solicitors and actually building the business, but also have the support from the franchisor to make sure that the business is being built. That’s what we pride ourselves on. Yes, we do have the

referral source of real estate agents, but our managers and our management team support the business unit to help them successfully grow a business and be able to then have a sellable asset down the track,” he said.

Newell explained Nectar’s business model.

As a relatively new entrant to the franchise scene, he said the company has spent time building its referral network to enable it to bring a strong proposition to brokers.

“What Nectar is, is we deal with independent real estate agents, and we have a large network of independent real estate agents that refer to our brokers, and we actually plug into our software with their software so that we communicate with real estate agents and provide a solid lead background for brokers,” Newell said.

Newell said the benefits of such close alignment with real estate agents are easy to see. While many large real estate networks have in-house brokerages, Newell said his business helps provide scale for independent real estate agents and brokers who otherwise might not be able to get a foot in the door to form such referral relationships.

“Being affiliated with real estate agents, there are a lot of real estate transactions around the country, and most real estate transactions carry a mortgage in Australia.

For the customer it’s a daunting proposition to go and source the best loan that’s suitable

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15

PAUL NEWELL

to them. By affiliating yourself with a real estate agent, it actually allows the broker to do that running around, find the loan that best suits their needs and put that to the borrower while keeping everyone in the loop throughout the process,” Newell said.

He said the company’s branding was also built to provide brokers a leg up.

Newell argued that the branding sat well with consumers, and could help put them at ease in dealing with brokers.

“The Nectar brand was built around being exactly that to the customer. It’s a warm brand, it’s a comfortable brand, so when the customer looks at it, it doesn’t make them feel anxious. We believe we’ve hit the nail on the head when it comes to our brand proposition and bringing that brand to the marketplace,” Newell said.

STEPHEN MOORE

that I need a strong brand behind me to drive my presence. I need marketing, but I’m not really a marketer. I need an online presence, and frankly I wouldn’t know where to start. So brokers are looking for groups to provide that level of support,” Moore said.

Moore said the aggregator’s franchise model was proving attractive to brokers, a fact he said was evident from the new brokers joining Choice.

THERE’S A RECOGNITION WITH MANY BROKERS AROUND THE IMPORTANCE OF HAVING A SYSTEMISED APPROACH - S TEPHEN MOORE

SYSTEMATIC BUSINESS BUILDING

Increasingly, Moore said brokers expect such extra efforts from their aggregation platforms or franchise systems. He said many brokers had become focused on building their business in the most professional way possible, and that needed the help of their aggregator to achieve this goal.

“What we’re seeing with a number of our brokers is a recognition that if I just keep doing what I’m good at, which is primarily in my head, I can run a good business but to take it to the next level I need more. It’s the reason why we’re looking at Choice Home Loans,” he said.

Choice Home Loans, the aggregation platform’s franchise offering, provides a more hands-on approach for brokers looking to systematically grow their business, Moore suggested. He said many brokers are looking for more support than that available from traditional wholesale aggregation models.

“There’s a recognition with many brokers around the importance of having a systemised approach; that the stuff that’s not in my head is well documented, and the need to have a business system. There’s a recognition

“There’s been 65 brokers who have joined Choice in the last period, and 22 were with Choice Home Loans, so brokers are certainly voting with their feet,” he said.

But whether brokers choose a more structured franchise approach or a wholesale aggregator, Moore argued that all aggregation models had to provide a higher level of support in order to remain competitive and win over brokers.

“What is a key part of our business is about choice. We recognise that whether a broker wants to have their own brand – and there certainly is a lot of merit in doing that – or whether they choose to join one of our existing groups – and again there are various benefits in doing that – or they choose Choice Home Loans, frankly we’re pretty much agnostic. But what we are focused on is helping the individual business understand what’s important to them, where they’re going and how we can tailor the right support and business model to realise their business growth,” he said.

BUSINESS INTELLIGENCE 16

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Regrouping after crisis Thought leader Sam Cawthorn has faced and overcome some serious trials, and shares how to stay resilient in the midst of a crisis

S

am Cawthorn knows a thing or two about bouncing back from a crisis.

At just 26, Sam’s life changed forever when he was involved in a car accident and pronounced dead at the scene for over three minutes by paramedics.

Following his resuscitation, Sam was faced with the amputation of his right arm and severe damage to his right leg, and the prospect of never being able to walk again.

Rather than dwell on his misfortune, Sam realised he had the unique opportunity to embrace this crisis and use it to transform his life.

Today, Sam is a thought leader and expert in resilience and corporate turnarounds, working with big brands such as Google, Exxon Mobil and Toyota to transform impossibilities into possible realities.

AB : What’s a better way to position things that don’t work out as planned?

SAM CAWTHORN: A lot of the time we shy

away from vulnerability and I think that’s a negative approach. Often it’s easier to not only play the blame game but also not admit our faults or admit to the things we’ve done wrong. That’s the starting point to a turnaround. The only way we can turn things around is fronting up, admitting it, and showing some vulnerability.

Vulnerability does lead to growth.

AB : But it’s possibly something many executives struggle to show, especially when they are positioned almost like rock stars or superheroes in some companies.

SC: In a way it’s the people – the staff at

every level, the board, even stakeholders – who look at them as superheroes. They all think their leaders are rock stars who have it together. Often that’s not the case. Yet there’s a power in vulnerability – that’s how people can find you more relatable, more approachable, easier to communicate with and connect to. In today’s world we’re not looking for the hero boss.

AB : What’s perhaps the most pivotal thing you’ve learnt since your accident?

SC: I have something called phantom pains.

After my accident I lost my right arm. I get this phantom pain and sometimes it will

wake me up in the middle of the night because it’s so painful. It’s like the worst pins and needles you’ve ever had. There’s something called cognitive dissociation, which means that what we focus on is what we get. So if we focus on everything that’s going wrong, whether that be a downsize crisis, a natural disaster, a downturn in sales or budgets, problems in the office, staff engagement, whatever it might be – if that’s all we focus on, that’s how we’ll not only feel but that’s how everyone else will feel.

TOO OFTEN WE LOOK AT THE GOOD OLD DAYS, AT BOUNCING BACK TO WHERE WE WERE BEFORE THE CRISIS HIT AB : Can you outline cognitive dissociation?

SC: Cognitive dissociation is like neurological

conditioning – I’ve conditioned myself to no longer focus on that pain. Instead I focus on the good things in life: a wife who supports me, kids who love me, this amazing job where I fly all over the world. So I’ve now focused on the things I can do, not the things I can’t do.

Crisis creates opportunity, which means some of the toughest times in our lives can ignite some of the greatest growth periods in our life. But we have to choose to direct our focus in the right areas. Admit you’re wrong, show some vulnerability, and then focus on what is working well, on strengths, not weaknesses, on where you can move and not where you can’t move. Focus on opportunities, not the crisis.

AB : How else can we reposition our thinking when times are tough?

SC: Everyone goes through crises – whether

they are financial, plummeting staff engagement, loss of a deal, a downturn.

It could be personal as well. A lot of the tools we use in our personal resilience can be transferable in business and vice versa.

In saying that, it’s our decision, not our condition, that determines who we are.

Everyone has conditions in their lives, and some of those conditions can be tough: layoffs, relationship problems, conflict. But no matter

SAM CAWTHORN

what that condition is, it’s all about our mental attributes and being proactive about our own decisions instead of being reactive to our own conditions.

AB : How does this tie in with the theme of your book: bouncing forward?

SC: I talk about reactive innovation and

proactive innovation. Too often we look at the good old days, at bouncing back to where we were before the crisis hit. But all the latest research shows that through a crisis we can ignite the greatest growth periods in our life.

Adversarial growth is not about bouncing back, going back to where we were, but bouncing forward to what we can become.

It implies we are bouncing forward so we must start thinking creatively because we’ve never been there before.

AB : It could be a good opportunity to rethink how things are done?

SC: When people have a frustration, a

problem, I tell them to turn it into a crisis. It sounds counter-intuitive, but when we’re in a crisis there is something in our biology that says we must get ourselves out of it. So we think differently; we think more creatively.

When it’s a frustration or problem, we tend to procrastinate dealing with it: I know it’s a frustration, I know it’s annoying, but I can’t focus on it right now because I’ve got all this other stuff to do. That’s the key difference in bouncing back versus bouncing forward.

When we’re bouncing back it’s all about going back to how we used to be.

AB : Can challenges and setbacks actually build resilience?

SC: There is something called adversarial

growth. Hypothetically, as an organisation, you may have had a really tough time financially, scraping the bottom of the barrel, looking at layoffs. But then we have this turnaround because we think differently and we get through it. When something like that happens again, we know how to handle it.

We’ve been there, we’ve done it, we’ve come out wiser. That is how adversity and crises are good: they teach us the core fundamentals and strategies we need in order to move through that – and the key word is ‘through’ – so we can then help people and other teams to navigate through their crisis.

NEWS 18

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CONTINUED FROM PAGE 1

Ray Hair:

MANDATE TO GROW Mortgage industry veteran Ray Hair has joined Homeloans, and says his mandate is to see the non-bank make significant inroads in market share

H

air previously helmed PLAN Australia, where he served for 10 years. He departed in 2011 to take the reins as CEO of Australian Life Insurance, which sells debt protection insurance through brokers. Now, with the departure of Greg Mitchell, Hair has stepped into Mitchell’s role as general manager of Homeloans Ltd, a move he said he was excited to make.

“It’s absolutely fabulous to be on board at Homeloans and back in the mortgage game itself, so to speak,” Hair said.

First and foremost on Hair’s agenda will be pursuing growth for the non-bank lender. The lender has seen strong results, reporting a 12.4% increase in its lending volumes at its last six-month profit report. But Hair said he will be looking to take the non-bank even further.

NEWS 19

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“The game plan is quite clearly to grow. My mandate is to grow Homeloans in terms of market share.

It’s about getting the message out to brokers and through brokers to their customers. We need to get the message out there, and get aligned with the right brokers; those willing and able to provide alternative solutions to their customers,” he said.

While major banks still dominate market share, Hair suggested that the economic environment was becoming more conducive to competition.

“Competition is alive and well, and I think that’s a good thing for consumers and a good thing for brokers,” Hair said.

This improved competition is largely due to an improved funding environment, Hair said. With interest rates at record lows and funders coming back to the market, Hair said non-banks had to grab hold of the opportunity presented by the current economic environment.

“The reason I’m so excited about this opportunity is that there is an improved environment on the funding side. We’ve got a broader choice of funders and a broader range of products for both brokers and their customers. Now it’s about leveraging that environment in the current market, and delivering an alternative solution to the broker market and to their customers,” he said.

One source of growth for Homeloans has been its acquisition of the defunct Refund Home Loans. While Homeloans did not buy the company’s brand, it did acquire Refund’s book, as well as adding many of the company’s former brokers to its existing branded broker distribution network.

“You can measure [the success of] that in two ways,” Hair said. “First there was the acquisition of the existing book, and financially that made a lot of sense. Then there’s the opportunity to partner up with brokers and provide them with a new home, combining that with a small but existing Homeloans branded broker channel. The success of that strategy is what’s ahead of us. We have to work out the best way to leverage that channel, support that channel and grow that channel in a way that also works in relation to our non-branded broker partners. That opportunity is an emerging one.”

With these opportunities in front of them, Hair said Homeloans is poised for growth. He said his role will be

focused on significantly expanding the business.

“Our opportunity is still there to grow. We’ve got a better funding environment and a good interest rate environment, and my mandate is to grow the business and to build on the existing sales team. The existing sales team is very strong and has a very good reputation, but we have to grow that to almost double in size,” Hair said.

are flexible, responsive and on the same page. What we have to do is deliver them a solution they can sell,” he said.

Hair suggested the non-bank sector couldn’t expect the support of brokers unless it showed them it deserved their confidence.

“Yes, it’s easy to be critical of the market share the majors have, and I don’t mean that in the sense that their

WE NEED TO GET THE MESSAGE OUT THERE, AND GET ALIGNED WITH THE RIGHT BROKERS; THOSE WILLING AND ABLE TO PROVIDE ALTERNATIVE SOLUTIONS TO THEIR CUSTOMER LAYING THE GROUNDWORK

FAST FACT

12.4% Increase in lending volumes Homeloans reported at its last sixmonth profit update Source: Homeloans

In order to achieve this growth, Hair said the lender has laid the groundwork of investing in its processes to better serve its broker network.

“We’ve done a lot of work recently in terms of improving our processes, and bringing on the right people in the back office and front end, and now is the time to leverage off that,” he said.

“We’ve improved our credit capabilities in terms of our people and processes, and working with our funding partners to streamline those processes and take out the duplication where possible. That delivers to the broker and their customer a fairly seamless service.”

Hair said non-banks could only hope to compete by ensuring their processes and service provided brokers with positive experiences.

“If you’re going to be a viable alternative lender, you have to deliver positive service experiences at the broker level and the customer level,” Hair said.

He argued that non-banks had to be proactive in communicating their value proposition to brokers. Without the retail distribution footprint of their competitors, non-banks’ fortunes are generally much more tied to the third-party channel. Yet, the lenders can be something of a hard sell to many brokers, who choose to send most deals through traditional banks.

But Hair said it is the responsibility of the non-banks to position themselves as a viable alternative.

“I don’t believe that there’s a lack of support of non-banks. I think it’s up to us to sell ourselves to brokers. Brokers will align themselves to partners who

market share is because of brokers doing the wrong thing, but we need to partner with brokers to demonstrate that we’re going to deliver value to their customer and value to them. If there’s a lack of confidence in their lender partner, brokers are not going to be putting that lender on the table as an alternative and I think that’s understandable. The challenge is very much on our part, and all we can do is look to brokers who are willing to consider us and demonstrate to them that we have a range of alternative solutions that are every bit as competitive as anyone else,” Hair said.

Overall, Hair said he sees strong opportunities for both the non-bank sector and mortgage brokers. That isn’t to say the current environment is without headwinds, however.

“I do think it comes back to housing affordability and consumer confidence.

Whilst the interest rate environment is at record lows, people are not as confident about their economic position and – depending where you are in Australia – affordability has become a major issue,” he said.

But, just as non-banks must be responsive to changing dynamics, Hair said brokers who show adaptability are geared for success.

“It is a relatively buoyant market, but you’ve got to understand that it is very much driven by the current positive interest rate environment.

Brokers are at the coalface. They hear it first, see it first and feel it first. They have to listen and respond to their customers in terms of what they’re looking for. It’s the broker who is inflexible who is at risk of missing opportunities as markets and demand changes.”

OPINION 20

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EXCESSIVE INQUIRIES

ADVERSE LISTINGS

Look at a client’s credit file first, before talking about loan products

CREDIT REPAIR

Merri Mansfield of Princeville Credit Advocates on saving yourself time nd trouble by assessing your client’s credit situation ASAP

W

hen a finance broker first speaks with a new client they always ask: “Do you have any adverse listings on your credit file?” It’s such an important question because if there are adverse listings the broker can move to “Plan B” immediately, and save themselves and their client a lot of annoyance and time.

If you don’t ask the question, or the client does not know if they have a troublesome credit score, it is possible to submit an application only to receive a “no” from the lender because there is adverse listings on the credit file.

Nearly every broker I speak with can recount an experience like this and how frustrating it was.

One rule I have encouraged aggregators and finance brokers to adopt is getting a copy of the client’s credit file first, before talking about loan products, lenders or interest rates. The client’s credit file can be accessed easily, within one business day from Veda for $69.95, or if you, the broker, subscribe to one of Veda’s business products you can access the client’s credit file for a much cheaper price, with your client’s consent.

Once you have a copy of the credit file you can easily check whether the client has any adverse listings, or excessive enquires, that will seriously inhibit the loan application process.

Getting a copy of the credit file will turn out to be a small investment to make an informed decision about recommending the best loan products and lenders for your client.

If there are adverse listings on your client’s credit file you can consider whether to refer the client for credit repair, or massage them into a first tier loan (if the type and value of adverse allows that), or place them with a second tier lender. There are pros and cons for each option but if the choice is between referring the client for credit repair and placing them into a high interest loan I would always consider the long-term financial interests of the client.

DID YOU KNOW?

ONE RULE I HAVE ENCOURAGED AGGREGATORS AND FINANCE BROKERS TO ADOPT IS GETTING A COPY OF THE CLIENT’S CREDIT FILE FIRST, BEFORE TALKING ABOUT LOAN PRODUCTS, LENDERS OR INTEREST RATES The client may want to rush into a high interest loan because they have found “the dream property” and there may be nothing you can do to stop that, but you can strongly suggest that an alternative might be clearing the adverse listings off their credit file via a reputable credit repair company. This

380% In the week following the introduction of comprehensive credit reporting, Dun & Bradstreet reported a 380% increase in consumers requesting a copy of their credit report. Prior to changes in credit reporting law, D&B reported consumer awareness of credit scoring was as low as 10%.

Source: Dun & Bradstreet

option may save them thousands of dollars in interest rates over the life of the loan and it may also save them getting into financial difficulty down the track.

On average, to remove one adverse listing from a credit file costs a little over a thousand dollars and reputable companies are highly successful at erasing these listings. If successful, the client will be able to access finance at interest rates that are two to five per cent lower than if they got a loan with a second tier lender. You do the maths. It’s a no-brainer. Credit repair can save the client thousands.

The take-home message I want to communicate is simple: I strongly recommend that you get your hands on a copy of your client’s credit file to check whether there are any adverse listings before you put in a loan application. If there are difficult defaults or judgments on the credit file I recommend that you refer your client to a reputable credit repair company who can advise them.

Credit repair takes an average of four to six weeks to complete, but looking at the long term, the financial effect for your client is enormous in terms of interest rate savings. Even if you do place the client with a second tier lender, consider recommending credit repair at the same time because if the credit file can be cleaned of adverse listings you can refinance them into a lower interest rate loan a few weeks or months down the track.

Your client will turn into a raving fan and thank you for it.

THE COALFACE

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21

The one billion dollar broker Kiwi broker Bruce Patten has become the first across the ditch to crack the $1bn mark

B

ruce Patten has only been a mortgage broker for just over a decade and he’s already cracked the billion dollar mark.

The eastern Auckland broker, who is the director and sole broker at Designer Mortgages, recently surpassed $1bn in loans written – a feat which the New Zealand Professional Advisers Association noted is a first for the country.

Patten was national sales manager at Westpac New Zealand before deciding to get qualified as a mortgage broker to show his team he could do it competently.

“I wanted to be my own boss, and also show people how to be a good broker, because I was leading a team of mobile brokers and wanted to prove I could do it and do it well. It was about not relying on other people for results,” he said.

The 42-year-old found he enjoyed the finance aspect and helping people get into their first home or plan investments. “I’m a people person, I like to interact and engage with people,” he said.

Despite the New Zealand housing market and brokers’ subsequent growth being slackened by the GFC and more recently the Reserve Bank’s high loan-to-value restrictions, Patten’s business took off.

Patten, who has won numerous broker awards, puts the success down to the level of care he provides clients.

“It’s the quality of service and the knowledge you share with clients that makes a difference in becoming a trusted adviser. A lot of the success is down to longevity, and being in the market for the good times and the bad times.”

Another important factor for success is getting the balance between work and life

right, Patten said.

“It’s about sustaining those levels so you can work harder, by spending time with family and taking time off.”

Like clockwork, Patten takes five weeks off over Christmas until the end of January to spend time at his beach house in Pauanui, Coromandel Peninsula, with his family.

He has owned the property since he began broking and used to reward himself after a month of hard work by driving down from Auckland on a Friday evening and back up again on the Monday morning.

“But now the kids are older it’s a bit hard to go down on the weekend,” he said.

His two boys, aged 12 and 13, are part of the reason Designer Mortgages has so much business – as it prompts Patten to become involved in the community and meet potential clients.

The company, which is under the Loan Market umbrella, sponsors the local rugby club – getting naming rights in return – in order to increase brand presence.

“It’s building the brand – saying, this is the place you go to for a mortgage in our area. Early on in the business, I would advertise in the local paper to build awareness,” Patten said.

“It’s got to the point now where we don’t need to advertise as the business comes to us, which is a nice place to be. But you have to spend money to make money, and we spent a lot on building brand awareness over the years.”

So, what next for the broker who cracked $1bn?

“Another billion,” he said, half-seriously.

“At the moment, I work hard but I feel like I have a fairly good lifestyle and enjoy what I do.” But in another eight years, having

BRUCE PATTEN

worked as a mortgage broker for two decades, he intends to semi-retire.

“If I’m succession planning, I’d like to think my kids will come through and take over,” he said.

But succession might be a trickier notion in New Zealand than in Australia, due to the limited pool of brokers. A problem which Patten wants to see change in the future is the lack of young people wanting to enter the industry.

“We need to grow our market share.

Compared to Australia we’re considerably lower and the only way we can change that is through growth. The market here contracted considerably during the GFC, and we need to rekindle growth by encouraging new brokers to come through and see it as a viable and exciting business option,” he said.

In the meantime, Patten urged other brokers who want to break the $1bn mark to work harder and smarter for clients.

“So many brokers do the bare minimum, but if you go the extra mile it means a huge amount to your clients. That’s the difference between a great broker and an ordinary one.”

MARKET TALK 22

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Housing market has moved through the peak of the growth cycle RP Data’s Tim Lawless says the housing market may have peaked for now, but that doesn’t mean it’s in for a sustained fall

Rolling quarterly change in capital city dwelling values original and seasonally adjusted series

We have also seen some softening in our vendor metrics.

Auction clearance rates peaked in February this year at 76% and last week were recorded at a still healthy but lower 66%.

Weekly clearance rate, combined capital cities 90% 80% CLEARANCE RATE

T

he RP Data-Rismark Home Value Index reported its first month on month fall in May after capital city dwelling values consistently rose over the previous 11 months. The extent to which the May decline was a seasonal factor has been a key topic across the media; generally the month of May is a seasonally weak time for housing markets and no doubt the most recent result suggests that was the case again this year.

When we adjust our index for seasonality the May numbers are still down 1.2% compared with a 1.9% fall in the original index reading. When we take the adjusted reading and also look at trend rate of growth over a rolling three month period it becomes increasingly evident that the Australian housing market has probably moved through the peak of its growth phase.

70% 60% 50% 40% 30% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14

8%

Vendor discounting eased ever so slightly in April, rising from 5.4% to 5.6% in April.

6% 4% 2% 0%

Average rate of vendor discounting, combined capitals

-2%

Seasonally adjusted Original -4% MAR 96 MAR 98 MAR 00 MAR 02 MAR 04 MAR 06 MAR 08 MAR 10 MAR 12 MAR 14

In fact, the quarterly rate of growth peaked back in June of last year at 1.9% in original terms and has since trended progressively lower.

A few other factors are lining up to suggest the housing market may be cooling. Consumer sentiment, which shows a high correlation with housing demand, peaked in September last year. After the index tumbled in May as consumers reacted pessimistically to the May budget, it was announced the consumer sentiment reading is down 16% from the recent peak reading. Historically buyer demand tends to move with consumer confidence readings; when consumers are confident they are generally much more willing to make a high commitment decision such as purchasing a property.

30,000 28,000

120

26,000 24,000

110

22,000

100

20,000

90

18,000 16,000 14,000

80 70

Consumer sentiment (LHS)

Sales vols (Syd, Mel and Bris) (RHS)

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

Apr-13

Apr-14

And the average selling time showed a modest increase, rising from 36 days to sell the typical capital city property to 37 days (which is still a historically low reading).

Average days on market, combined capitals

Transaction volumes vs consumer sentiment 130

0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% Apr-05

12,000

60 MAR 94 MAR 96 MAR 98 MAR 00 MAR 02 MAR 04 MAR 06 MAR 08 MAR 10 MAR 12 MAR 14

90 80 70 60 50 40 30 20 10 0 Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

Apr-13

Apr-14

23

FAST FACT

37 days Average time on market for capital city houses Source: RP Data

Another factor that is likely to be dampening housing market conditions is affordability and the ratio of rental prices to dwelling prices. Value growth has substantially outpaced rental growth which means purchasing a home is becoming substantially more expensive than renting. Over the past five years Sydney dwelling values have increased by 32.5% while rents are up 25.7%. Similarly, in Melbourne values are up 26.9% over the past five years while rents are up a much lower 16.2%. Both cities have seen investment yields move substantially lower to be the lowest of any capital city.

Annual change in dwelling values and rents

Gross rental yields

40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10%

9%

SYDNEY

Dwelling values

Dwelling rents

SYDNEY

8% 7% 6% 5% 4% May 10

May 12

May 14

May 12

May 14

May 08

May 06

May 02

MELBOURNE 9% 8% 7% 6% 5%

While value growth in the housing market may be moderating across combined capital cities, it’s important to remember that each city and region is at a different stage of the growth cycle. While Melbourne, Sydney and Perth appear to have moved through the peak of their cycle, momentum seems to have gathered some pace in those markets where growth conditions have previously been more sedate than the larger cities. Brisbane, where transaction numbers are more than 20% higher over the March quarter compared with the same period a year prior, has seen a pick-up in the rolling quarterly pace of growth while Adelaide and Hobart have also showed some evidence of improving market conditions. Historically these capital cities have lagged behind Sydney and Melbourne in market growth phases.

We don’t believe that the falls recorded in May are set to continue, however a slower rate of growth over the coming months is likely.

The real test for the market will be throughout the spring selling season where sales and listings ramp up once again. Given the housing market began this year with momentum it seems unlikely that value growth will return to the highs recorded over the second half of 2013.

May 08

May 06

May 02

May 04

May 00

May 98

4% May 96

Dwelling rents

May 96 May 97 May 98 May 99 May 00 May 01 May 02 May 03 May 04 May 05 May 06 May 07 May 08 May 09 May 10 May 11 May 12 May 13 May 14

Dwelling values

May 04

May 98

May 00

Gross rental yields

MELBOURNE 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10%

May 10

Annual change in dwelling values and rents

May 96

May 96 May 97 May 98 May 99 May 00 May 01 May 02 May 03 May 04 May 05 May 06 May 07 May 08 May 09 May 10 May 11 May 12 May 13 May 14

3%

FINANCIAL SERVICES 24

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Falling optimism could hurt insurance sector

A

ustralians are less optimistic about the future following the Federal Budget, and post-Budget pessimism could have a negative effect on the insurance industry, according to Allianz.

Allianz’s Future Optimism Index found that optimism had taken a predictable post-Budget tumble. Women are less optimistic about the economy than men, with optimism at its lowest in SA, and falling most sharply in Queensland.

The overall fall in optimism is said to be driven by non-Coalition voters, whose overall optimism has dropped dramatically in recent weeks.

However, Coalition voters have not wavered, with optimism still at the record high levels reached following the election of the Abbott Government.

An Allianz spokesman said people’s optimism translated into consumer and business confidence, meaning this could eventually affect some lines of business for the insurance industry.

“New car sales are a key driver of new motor insurance business.

They have fallen in the last six months or so compared to the same time last year. Will a lack of optimism therefore result in this trend being continued or exacerbated?”

The spokesman said the same theory applied to home insurance, which is affected by residential housing purchases and property investment.

However, while a strong economy can lead to strong insurance premium growth, a slower economy can also spell good news for the insurance industry.

“High and rising unemployment is also positively correlated with claims in areas such as workers’ compensation, consumer credit insurance and illness/disability covers in life and accident and illness (income protection) insurance policies.”

15

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BY THE NUMBERS

5th

Australia has ranked as the 5th best country in which to do business in the Economist Intelligence Unit’s latest Business Environment Rankings Source: The Economist

Already making waves in the personal lines general insurance sector, Coles has today launched a life insurance product.

The supermarket giant has said it will offer life insurance, starting at $1 a week, underwritten by Metlife.

Rob Scott, Coles finance director, said offering life insurance was a natural progression for the company, which already sells car and home insurance.

“Coles realises how important your life, your health and your family are, and we want to help everyday Australians protect what is dear to them,” Scott said.

“We know that changes to life circumstances are a big driver in consumers making the decision to take out life insurance. It’s important for them to know Coles now offers protection, with a price-beat guarantee that is simple, easy to understand and easy to apply for.”

He added that when Fly Buys members combined Coles credit card and insurance products they had the opportunity to save over $900 a year.

MANY AUSSIE WORKERS LACK ENERGY TO DO THEIR JOBS The link between good health and increased workplace productivity is an established one, but it seems that not all employees take a healthy lifestyle seriously.

The Randstad Workmonitor survey showed that 21% of Australian workers don’t feel like they have enough energy to come to work each day, while 62% of employees have noticed that the quality of their work improves when they exercise regularly.

While 93% of the workers surveyed believe maintaining a healthy lifestyle is their own prerogative, employment analyst Steve Shepherd says more organisations are looking at the link between health and issues like absenteeism, and encouraging workplace programs that support healthy eating and exercise.

The challenge businesses face, he says, is in balancing the potential risk of workers being injured while doing team-based sports that are seen to be sponsored by the company, with the potential benefits of having fitter employees.

“I think organisations are trying to figure out how to balance the risk associated with a group of employees on company time engaging in sports activity where they might sustain an injury – what the risk of that is to the company, versus the value of encouraging a healthy lifestyle and the positive impact that has, not only on the health and wellbeing of the staff, but also the effect on staff turnover and absenteeism levels.”

ALLIANZ OPTIMISM INDEX

0

COLES PUSHES INTO LIFE INSURANCE

MAY 14 Source: Allianz

Friday 17th October 2014 Sydney Town Hall

Being recognised as the nation’s Young Gun of the Year is something I can take back to my business and show my clients that they are not only working with a professional brand in Mortgage Choice, but also with one of the elite in the industry.

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13th Annual Australian Mortgage Awards

ONE YEAR ON 26

ONE YEAR ON What a difference a year makes … or not. Australian Broker reflects on the punditry, news and trends that made headlines 12 months ago Australian Broker Online, June 2013

Improved housing affordability leaves FHBs in the dust

Last year saw a slight increase in housing affordability, with the Adelaide Bank/ REIA Housing Affordability Report tracking a 0.5% decline in the proportion of income required to meet loan repayments. In spite of the improvement, first home buyers were still steering clear of the housing market. First home buyer participation over the March quarter of 2013 fell to its lowest number since the June quarter of 2004. At the time, first home buyers made up just 14.5% of the owner-occupier market.

What’s happened since?

Affordability has stayed reasonably flat over the year. The latest Adelaide Bank/ REIA Housing Affordability Report showed a quarterly drop of 0.2% in the proportion of income required to meet loan repayments. The average proportion of income needed to service a loan is now 30.6%, up slightly from 29.9% last year. First home buyer participation has remained weak, with first-time buyers now making up only 12.8% of the market.

May rate cut a ‘warning sign’

A top research analyst for The Australian Institute last year labelled the RBA’s decision to lower the official cash rate a “warning sign” about contractionary fiscal policy. The analyst warned that “Chicken Littles” decrying government debt and deficits would slow growth at a time when unemployment was at its post-GFC peak.

brokernews.com.au

Budget ‘a great opportunity’ for brokers

T

he 2014 Federal Budget has hit consumer sentiment hard and drawn criticism from a variety of industries, but ING Direct’s Mark Woolnough had a more positive take.

“I think Australians are incredibly agile and adaptable to change, and I give the government some credit to now applying some transparency on resources and allocations of costs and where that’s spent and how it should be divided amongst the community,” Woolnough said.

And brokers should particularly take note of the opportunities provided by the Budget, Woolnough said. “What I do like about it, though, is I sat there and I thought, ‘What an outstanding opportunity and what a fantastic prospect for the advice market around the message that’s concentrated on and focused on the ageing population, on the retirement age being extended.”

And retirement planning isn’t the only message brokers can glean from the Budget, Woolnough said. “[There’s] the realisation that this will probably maintain a low cash rate for a period of time, so it gives brokers a tremendous opportunity to work more closely with current customers and also their new customers in providing solutions for home finance, whilst at the same time working with them for that conversation around the longer financial planning and the sequencing of where they want to land in terms of retirement and after-work lifestyle,” he said.

Woolnough said this highlights the further convergence of financial services. “Consumers have taken it upon themselves to better educate themselves to do more research into what’s important to them, and the internet and digital world has given them amazing access. They’re going to their advisers now looking for some real guidance and real support, not just a transactional conversation around ‘I need a home loan’,” he said. “It’s the duty of the financial adviser now to help them unscramble the egg and solve some of these mysteries.”

What’s happened since?

Reducing debts and deficits has continued to be the cause celebre. An austere Federal Budget has vowed to tackle debt by constraining spending. Now, the RBA’s choice to leave rates on hold rather than begin a new fiscal tightening phase has been seen as a warning sign. A Mortgage Choice spokesperson recently said the RBA’s rate hold could be put down to a severe decline in consumer sentiment.

For the full interview, head to www.brokernews.com.au/tv

FORUM 27

brokernews.com.au

APRA draws fire from brokers The banking regulator has garnered the scorn of brokers after it labelled high upfront commissions a risk to prudent lending

BRING ON THE CORRECTION

A Brisbane-based financial planner recently posited that Australia’s large amount of mortgage debt was the precursor to a housing meltdown.

While bubble talk generally draws scorn, one commenter welcomed it.

“When I bought my home the only deposit I had was money my parents had given me. I didn’t have to prove I had saved a cent. When my sister and her husband bought their home he didn’t even have a job. The bank just told them to fill in paperwork saying he was self-employed. Luckily he ended up getting a job in WA earning a large wage as they were close to declaring bankruptcy. This was over a decade ago when houses were relatively cheap. People not already in the market have no hope of buying themselves a HOME today. The only people who benefit from rising house prices are people who have more than one home.

Bring on the correction.”

Lara on 3/06/2014 at 12:04M

LENDER ANTAGONISM CAN BE CURED BY COMPETITION MFAA CEO Phil Naylor recently suggested increased competition could be the cure for punitive measures from lenders such as clawbacks.

Dave Robinson on 3/06/2014 at 9:29AM “While Mr. Naylor’s comments are correct to a degree I think he runs the risk of being seen to take the easy way out here. Compare this to the FBAA approach which is, while we can’t do anything in

relation to commercial agreements, we will bring it up with lenders every chance we get; the MFAA wants to put the onus on ‘more competition’.”

Darren on 3/06/2014 at 9:21AM “To provide quality service, brokers need to focus on their customers. With all of the articles and industry talk about what brokers might lose, how will this industry ever be able to focus on what is really important – the customer? Thank you MFAA for providing some focus towards reassuring brokers instead of rattling them.”

B

rokers were none too happy regarding APRA’s announcement of its draft residential mortgage lending guidelines, which highlighted some mortgage broker practices as a risk.

In attempts to keep the housing market bubble in check, APRA discouraged banks from offering high upfront commissions to brokers, to make sure incentives do not lead to extra risk taking.

Brokers, understandably, were up in arms after reading this.

Tony Broker called the statements a “Typical ‘cheap shot’ at hard workers trying to make a reasonable living.” “… Anything a broker can do is simply a reflection of the process of the lender. But we are the ones held financially accountable,” noted John from Geelong.

Lender thought APRA’s advice is contradictory.

“APRA are actively discouraging lenders from offering high LVR loans, but in many states, there is still a first home owners boost or incentive. Not only do we have conflicting paths, the assessments completed

by APRA show very little resemblance to the real world, but as the regulating body, you cannot risk non-compliance as they can remove your ability to conduct business.”

This was seconded by A Poor Reason Always, who said: “Obviously APRA has no idea what majority of professional

CONFLICTS OF INTEREST COULD HAMPER COMMISSIONS

Connective’s Mark Haron has said many brokers aren’t effectively disclosing conflicts of interest that may exist due to bank-owned aggregators pushing their own products.

Regional Broker on 2/06/2014 at 9:38AM “I am a broker with a bank owned aggregator and I can say I have never had any pressure to push a white label product or use one of the lenders that own my aggregator.”

brokers do and point out rogue traders as their ‘experience’. Very insulting to majority of us. How much is the bank soliciting APRA staff? Perhaps this needs to be investigated. Always the soft target. Good time for MFAA & FBAA to step it up for us mere brokers.”

Melbourne Broker thought APRA staff need to do their research better. “Whoever wrote the guidelines at APRA are clearly out of touch with the real world, and not up to date with what has happened with both brokers and financial planners in the last few years. I wonder if they have heard of NCCP…” Clarke Kent, meanwhile, was simply incredulous.

“More government intervention, no wonder small business is wilting on the vine in this country. Try this for size, as a broker no guaranteed salary, no holiday pay/leave loading, sick leave, salary continuance, superannuation and some bureaucrat sitting in APRA has the nerve to suggest upfronts should be trimmed! You cannot be serious!”

Joe Broker on 2/06/2014 at 11:27AM “Why were banks even allowed to own aggregators in the first place? Isn’t that contributing to conflicts of interest?”

What do you think?

Leave your comments at brokernews.com.au

PEOPLE 28

brokernews.com.au

Born to run A major lender is sending a team to take on other countries in a global race, while raising money for a good cause right here in Australia

E

mployees of one major bank are getting ready to represent Australia on the world stage as they head for London to take on the global JP Morgan Corporate Challenge.

The Corporate Challenge, a 5.6km race, sees corporate teams competing across the globe. Late last year, at Sydney’s event at Centennial Park the race broke participation records as 8,125 runners registered – the most in the Corporate Challenge’s 13-year history in Australia.

At the front of the pack was the Westpac team of Kevin Lucas, Nicole Ward, Annabel Merz and Steve Perry. The runners smashed the course, setting a combined team time of 1:21:14, beating all comers in Sydney and registering the third-fastest qualifying time globally.

As they prepared to head to London for the World Championship in July, Ward said she believed the team was well positioned to win one for Australia and Westpac.

“I think we’ve got a really good chance.

When we did the qualifying race, we actually hadn’t trained for it, and there’s a big hill in the Sydney course compared to the flat course in London. We’ve all been training well and we’re excited to give it our best and go out there and win for Westpac,” she said.

Merz agreed, and said the team was even better prepared than when they defeated their Sydney competition.

“I think we’re set this time as opposed to the previous race. We’re ready to take on the world. We were the third-fastest qualifiers, and given that the Sydney course is the hardest course and that we hadn’t trained, I think we’re in with a good chance,” she said.

The team is helping raise funds for the Westpac Rescue Helicopter. Last year the

team raised $15,000 for the helicopter service when fundraising for the City2Surf event. They will be kick-starting their fundraising activity this year with the JP Morgan Corporate Challenge through internal fundraising activities.

Lucas said the team had been working hard to prepare for the event, and praised the bank for its support as they readied themselves for London. Westpac’s Broker Distribution arm has sponsored a six-week training course for the team.

“It’s been great to be part of a Westpac team. Normally when we run, we run on our own, so to run together is great. Westpac have been really supportive and have really encouraged us,” he said.

Westpac head of broker distribution Tony MacRae said it was a natural fit for the bank to back its team of runners, and that he was confident the additional training would pay off for Lucas, Ward, Merz and Perry.

“There is currently a gap of 38 seconds between our team who has qualified with the third-fastest time and the fastest-qualifying team from San Francisco. Our runners are predominantly endurance runners and if they don’t combine speed and race-specific fitness into their training they’ll lack that higher gear they will need to hammer out a faster time. If it’s worth backing we’ll back it, and we believe that our Westpac team, with the right training, can make up the difference to take out first place in London,” MacRae said.

A win for the team in London won’t mean resting on their laurels, Lucas said. They’ll return to Australia in time to take on the City2Surf, an event they won last year.

Ward said that last year the bank had the

highest participation of any company to compete in the City2Surf corporate category, and she hoped their success in the JP Morgan Corporate Challenge would inspire even greater participation this year.

“It’s a fantastic opportunity for us as a Westpac team to promote health and fitness across the organisation, and hopefully it will encourage greater participation in the Westpac City2Surf team,” she said.

brokernews.com.au

IN FOCUS

N

ational Mortgage Brokers recently held its annual conference at the QT Resort in Port Douglas. Brokers heard from business leaders and sporting icons, and even got the chance to try their hands at cane toad racing.

CAUGHT ON CAMERA 29

INSIDER 30

brokernews.com.au

Branson blocked by own email filter Sir Richard Branson has been stymied by his own company’s email system

I

s the term ‘bollocks’ vulgar? Bollocks, says Sir Richard Branson.

He blogged about a battle he fought with his email system after discovering his own IT department had blocked the use of the word.

He was emailing Virgin Atlantic CEO Craig Kreeger, he said, and happened to use the word ‘bollocks’, only to be surprised to be notified the email could not be delivered.

Virgin’s IT department kindly alerted him that language deemed profane, vulgar or offensive wouldn’t pass filters.

Ironically, Branson’s company once won a court case determining that ‘bollocks’ was not, in fact, vulgar.

UK police had taken Virgin Records to court after they displayed The Sex Pistols’ iconic album Never Mind the Bollocks in the storefront.

According to police, it was too vulgar because ‘bollocks’ was a derivative of the word ‘testicles’.

But Branson brought a linguistics professor in as a witness to testify that it was actually a nickname given to priests in the 18th century.

TABOO LANGUAGE SERVES THE NEEDS OF PEOPLE FOR DEVELOPING AND MAINTAINING SOLIDARITY, AND AS A MECHANISM TO COPE WITH STRESS Of course, Virgin’s email filters are about to receive an adjustment.

“Craig loved the story, and is getting his IT team to correct the email block so we can all continue to use the word bollocks in the future,” wrote Sir Branson.

And maybe the policy change will be for the better, since a study by the University of East Anglia found swearing at work can reinforce solidarity amongst staff, and generally has a positive effect.

“Certainly in most scenarios, in particular in the presence of customers or senior staff,

profanity must be seriously discouraged or banned,” advised professor of management Yehuda Baruch.

“However, our study suggested that in many cases, taboo language serves the needs of people for developing and maintaining solidarity, and as a mechanism to cope with stress. Banning it could backfire.”

He added: “Managers need to understand how their staff feel about swearing. The challenge is to master the ‘art’ of knowing when to turn a blind eye to communication that does not meet their own standards.”

DIRECTORY AGGREGATOR / WHOLESALE BROKER

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Homeloans Ltd 13 38 39 www.homeloans.com.au Page 15 La Trobe Financial Services 1800 707 707 latrobefinancial.com.au Page 11

Liberty Financial 13 11 33 www.liberty.com.au Page 3 Macquarie 13 62 27 macquarie.com.au/mortgages Page 32 National Australia Bank www.nabbroker.com.au Page 7

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