Australian Broker 12.12

MARCH JUNE 2015 2015 ISSUE ISSUE 12.05 12.12

$4.95

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

+ ANALYSIS TRICKLE-DOWN REGULATION

What Basel 4 could mean for brokers P12

+ ANALYSIS PROTECTING YOUR FUTURE

Claims against brokers are on the rise P14

+ BEST PRACTICE SOCIAL SUCCESS

Using social media to market your business P16

John Flavell: PROTECTING AFFORDABLE ADVICE The Mortgage Choice chief on the franchise’s move to a more holistic offering

J

ohn Flavell’s finance experience has run the gamut of retail financial services. It’s little wonder, then, that when franchise broking giant Mortgage Choice was looking for a successor to outgoing CEO Michael Russell, it tapped the former NAB Broker head and MLC Wealth executive.

As Flavell explains, his experience prepared him for guiding the franchise’s future strategy.

FULL STORY PAGE 18

+ SPECIAL REPORT EDUCATION AND TRAINING

The importance of lifelong learning P20

+ FORUM BUBBLE TALK WON’T POP

Brokers sound off on housing market predictions P27

NEWS 2

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NUMBER CRUNCHING FIXED RATE DEMAND ON THE RISE

SLOW GROWTH FOR RENTS

HOME LOAN DEMAND FOR MAY

ANNUAL CHANGE IN RENTAL PRICES

HOBART

3.2%

BY THE NUMBERS

FAST FACT

359,443 Number of listed properties in May

ONGOING DISCOUNT FIXED RATE

18.17%

46.29%

STANDARD VARIABLE BASIC VARIABLE

16.73%

13.17%

Source: SQM Research

INTRODUCTORY RATE LINE OF CREDIT

2.59%

3.05%

$13.5bn In April, almost $13.5bn worth of investor loans were written – up 2.6% on the month prior

BRISBANE

SYDNEY

3.1%

DARWIN

2%

-5.5%

ADELAIDE

CANBERRA

1.2%

-0.5%

Source: Mortgage Choice MELBOURNE

2.3%

PERTH

-4.5%

COMBINED CAPITALS

1.5%

Source: Mortgage Choice

Source: CoreLogic RP Data

WHAT THEY SAID...

SCOTT MANNING

PHIL QUIN-CONROY

HARLEY DALE

STEPHEN MOORE

“We are going to see some very different dynamics in the market going forward, and probably a greater nervousness about maintaining the belief that house prices can only go in one direction” P13

“Training and education can have a significant impact on a broker’s bottom line, and we are seeing more and more brokers embrace the opportunity it presents” P20

“Most of the problems having an impact on housing affordability are caused by governments, and therefore governments can fix them” P22

“We spend the time with each individual broker to truly understand their needs, and then we tailor up support specifically for them” P26

NEWS 4

brokernews.com.au brokernews.com.au

NON-MAJOR BANK ANNOUNCES A MAJOR REBRAND ■ ME, formally known as ME Bank, has launched its new brand

Mark Bouris

YBR ANNOUNCES RAPID GROWTH

■ Yellow Brick Road has

reported growth of three times the market in the last six months.

The group – which encompasses the YBR franchise, Vow Financial and Resi – reported a 43% lift in loan settlements in the six months to April, compared to the same period a year ago.

In comparison, the broader Australian lending industry grew by just 12.5% in the six months to March.

“Our growth is the result of eager borrowing and low interest rates, as well as our swift response to rate drops with our ‘Rate Smasher’ product – one of the most competitive rates on offer,” Yellow Brick Road’s executive chairman Mark Bouris said.

“It [‘Rate Smasher’] has been extraordinarily popular with the demographic of borrowers looking for straightforward loans.”

The company has been able to double its settled loan volumes, even at a time when the market is becoming increasingly competitive, says Bouris.

“Four of our last six months have been our best months on record,” he said, referencing the settlements for November, December 2014, January and April 2015 which each surpassed $1 billion.

DID YOU KNOW?

$12.9bn Investors committed to $12.9bn in housing finance in March 2015, compared to the recent low of $6.3bn in April 2011 Source: ABS

identity, complete with a renewed approach product innovation to support the ongoing growth of the bank.

Major changes include a contemporary black-and-white logo and an official name change that embraces how the majority of customers were instinctively referencing the Bank – ‘ME’, pronounced like the pronoun ‘me’.

As a part of the non-major’s new brand identity and renewed approach to product innovation, ME has simplified its home loan offerings into two products − Basic and Flexible.

The Basic Home Loan is a new variable rate product, offering an interest rate of 4.29% (comparison rate 4.30%) with a free redraw facility.

In addition to a Basic Home Loan, ME has introduced a Flexible Home Loan.

“Your clients can choose between fixed and variable, or spilt between the two. They can also choose from a host of customisable add-ons such as free redraws, easy offset and the option to buy a member package,” ME general manager broker Lino Pelaccia said.

“We’re also introducing additional fixed terms, enabling us to offer loans of between one and seven years.”

FBAA backs calls to lower credit card rates ■ The FBAA is standing behind the mounting calls for banks to lower

exorbitant credit card interest rates, and has welcomed the federal government probe into why credit card interest rates remain alarmingly high despite a historically low cash rate.

Four years after the FBAA first made a submission to the Senate about an inquiry into card rates, APRA has finally backed the call for the banks to be scrutinised.

FBAA CEO Peter White said it’s better late than never that the regulator has weighed into the debate, which now sees the current spread between official cash rates and rates charged on credit cards at record levels.

“The FBAA first made submissions to the Senate in 2011 and have since mounted an ongoing campaign. Now with cash rates at 2% and credit card rates hovering around 18%, it’s time to act.

“I applaud APRA’s move… to stand in line with key officials, including Treasury, the Reserve Bank and even the Australian Securities and Investments Commission.

Peter White They all want to see something done.”

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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.

ANZ

NEWS

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Suncorp announces raft of product, service enhancements

ww

WORLD NEWS UNITED STATES OF AMERICA

■ Suncorp Bank has revealed its plans to

BANKS TO PAY MILLIONS MORE FOR MORTGAGE MELTDOWN Goldman Sachs and Morgan Stanley are reportedly nearing settlements for a billion-dollar mortgage payment case.

According to a Wall Street Journal report, the two banks – and seven others – are set to finalise the details soon, though an exact timeframe has not been given.

The report states that the expected settlement will fall somewhere between several hundred million dollars and $3bn each, based on the size of the bank and the level of misconduct displayed.

According to International Business Times, “The agreement is part of a broader push by the US government to hold more Wall Street firms to account for the 2008 crisis after authorities ordered the three biggest American banks – JPMorgan, Bank of America and Citigroup – to pay a total of over $35bn in cash and consumer relief.”

CANADA CANADA COULD SEE CASH RATE HIT ZERO A former Bank of Canada advisor is once again predicting rates will eventually drop to zero.

“I wouldn’t be surprised if rates here end up where they are everywhere else in the developed world, which is basically at zero,” said David Wolf, a portfolio manager for Fidelity Investments, at the Bloomberg Economic Series Canada conference in Toronto, according to Bloomberg. “I’m not really thinking recession here, but I’m sure thinking sluggish growth.”

According to Wolf, an uptick, oil prices and a rising Canadian dollar will threaten the noncommodity export that Stephen Poloz, governor of the Bank of Canada, is banking on for economic recovery.

The key interest rate has been held at 0.75% since a surprise cut from 1% in late January.

DID YOU KNOW?

28 months A recent Australian Bankers’ Association report claims Australian households are an average of 28 months ahead on their mortgages Source: ABA

Steve Degetto

further enhance its service offering for both consumers and brokers over the next quarter.

Steven Degetto, head of intermediaries for Suncorp Bank, says the non-major has recently completed a mortgage process review based on feedback from brokers which will guide improvements to its product and service offering over the next quarter. As a result, the non-major has announced plans to update its

upfront valuation process.

As well as enhancing its upfront valuation process, Suncorp will also be enhancing its post-approval service. According to Degetto, the lender will be launching DocuPREP, which will give brokers greater visibility to transactions post approval.

The broker head also announced that the non-major has plans to launch an enhanced broker awards program.

“We already have a rewards program for our top tier of supporters,” he said. “However, there are a whole bunch of other brokers that may not reach that top tier, but they are still really great supporters of ours and provide good levels of high quality business. We want to reward those guys and look after those brokers as well.”

Finally, Degetto said the non-major plans to break into small business and commercial lending through the broker channel.

MFAA reaches out to consumers with new column ■ The MFAA will be launching a

fortnightly column on Domain.com.au, which attracts close to four million consumer searches a month, to represent the broker industry and educate consumers.

The Fairfax-owned real estate publication approached the MFAA after the release of its recent Observations on the value of mortgage broking report, prepared for the MFAA by Ernst & Young.

“The Domain team were seeking a spokesperson who could share industry information that may assist consumers.

After reviewing some of the interesting statistics about broker market share and consumer perceptions of the industry in our

recent report, they contacted us directly with this opportunity,” MFAA chief executive Siobhan Hayden said.

“Given that we represent the industry directly and already offer free consumer content to our members, we are in a strong position to support a major player like Domain. It’s important that the benefits of choosing a broker are properly communicated to consumers, and that our own MFAA brokers are the best educated in their field.”

Siobhan Hayden

NEWS

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Former major bank home loan manager faces fraud charges ■ A former Westpac home finance manager has appeared in the Southport

FAST FACT 4.7% Rise in detached house approvals in April, bringing approvals to a five-year high James Symond

AUSSIE BRINGS CUSTOMER SERVICE IN-HOUSE ■ Aussie Home Loans has announced

plans to bring its customer service centre in-house.

Aussie chief executive, James Symond says the Aussie owned and run customer service centre is expected to commence operations in mid-October 2015 in Sydney, and will deliver on Aussie’s commitment to deliver the best customer service to customers and brokers.

“Our decision to insource this critical business function is a key part of our strategic and cultural objectives to deliver the best customer service proposition possible to our customers and brokers across all areas of our business,” he said.

“After careful analysis of our options, including our current outsourced call centre operated by TeleTech, we just kept coming back to the fact that we want to deliver more; more for our customers, become more focused on service excellence, and add additional capabilities to this important part of Aussie. We think this is best achieved by directly managing all of our customer contact points and truly becoming one team.”

Source: ABS

Magistrates Court on fraud charges brought by ASIC. David St Pierre, of Mount Nathan, Queensland, has been charged with seven counts of dishonestly inducing Westpac Banking Corporation to deliver property in the amount of approximately $2.5m between August 2008 and July 2013.

In March 2014, ASIC permanently banned St Pierre from engaging in credit activities and providing financial services. The regulator found that during his employment at Westpac, St Pierre had involvement in providing loans to All About Property Developments Pty Ltd, the real estate arm of an associated company, Capital Growth International Club Pty Ltd. St Pierre was released on conditional bail. The matter will return to Southport Magistrates Court on 6 July 2015. The charges against St Pierre carry a maximum penalty of up to 12 years jail on each charge.

The Commonwealth Director of Public Prosecutions is prosecuting the matter.

Westpac is working to ensure affected customers are appropriately compensated.

Broker ban should serve as a warning ■ A recent ASIC ban of a Sydney finance

broker serves as a warning to both brokers and lenders to be careful when accepting referrals, says a leading finance solicitor.

ASIC recently banned Siv Lim of Cabramatta from engaging in credit activities for three years and cancelled her Australian credit licence.

While working as an independent contractor for Betar Prestige Cars Pty Ltd, trading as Audi Parramatta, Lim submitted loan applications to Volkswagen Financial Services on behalf of Betar, where Betar was not authorised to do so. In order to make its referrals, Betar Prestige Cars was relying on

the point of sale exemption found in the NCCP Regulations. The activities that resulted in Lim’s ban included making referrals to finance vehicles not sold by Betar or making referrals to refinance vehicles previously purchased from Betar.

According to Amber Warren, a partner at Gadens law firm, this should be a lesson for brokers to be cautious of rogue referrers.

“The lesson for lenders and brokers accepting referrals is to check the exemption under which the referrer is operating and have measures in place to ensure that the rules relating to the circumstances under which such referrals can be made are being followed,” she said.

“In particular, it is important to remember that accepting a referral from an unlicensed entity that has not been made in accordance with the law can result in the entity accepting that referral being found guilty of dealing with an entity who wasn’t licensed but should have been.”

THE COALFACE 10

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and the monthly access fee is more cost effective than purchasing the software and keeping up an annual subscription.

“All those things mean that we have more time to actually do what we need to do in running the business, rather than worrying about compliance and data entry.”

Martinkovits’ aim is to develop his business to operate independently of himself, and so has focused on systemising as much as possible.

EXPANDING

Gaining the edge through technology Combining property with technology to expand rapidly

B

reakthrough Brokers’ CEO and credit advisor Jai Martinkovits’ vision is to create an ‘industry disruptor’, demonstrating the way technology can be used to great effect alongside broking.

Martinkovits studied computing at the University of Western Sydney, with a focus on e-business and business information systems.

“I’ve always had an interest in technology and property, so what I wanted to do was build up a mortgage broking business which could be an industry disruptor to innovate in that space, utilising technology.”

Martinkovits worked in the not-forprofit sector as well as politics before exploring the broking world with long-term goals in mind.

“It was still important to me that I was able to maintain my involvement in the political space, so I wanted something that could give me the flexibility to be able to do that.

“The ability to build up a trail book was particularly interesting to me,” he says, along with his interest in property and the drive to empower people. “I feel that what I do day-to-day empowers

people to be the best that they can possibly be and to acquire what they can, and that obviously translates into their personal lives and enables them to do other things.”

MYOB

Martinkovits launched the NSW brokerage just 18 months ago in January 2014, with his wife and office manager Teresa. Breakthrough Brokers specialises in residential loans but also covers vehicle finance and personal and commercial loans.

The business has used the cloudbased accounting software MYOB to great effect and with his background in technology and experience running an IT management start-up at university, Martinkovits explains how the software frees up valuable time allowing him to focus on bringing in business.

“It’s fantastic – the functionality. The end purpose is the same but the journey to get there is much simpler.”

The ability to access the software from any computer connected to the internet, bypassing storage limitations and installation procedures, saves a great deal of time for the user. It is also updated automatically by the provider

Martinkovits’ passion for innovation through technology shines through when he mentions that the brokerage may undergo rapid expansion in a few months as he looks to integrate with a online taxation platform.

“This opportunity that we have to integrate with a new online taxation platform is going to be a significant referral source for business for us.

“The great thing about it is because it’s a taxation platform, you know what people’s income and expenses are by the time you get a lead from that system, so they’re highly qualified leads and they’re people who are actively looking to get into the investment space or are already in that space.”

Martinkovits says if it goes ahead, they will receive a large volume of leads nationally. “We want to expand our broker network to include a broker in each state in the first instance and then obviously building on that as the demand grows.”

When not focusing on growing the business, Martinkovits enjoys the variety in broking.

“What I love is just the diversity of it – to be able to sit down with people from

THE END PURPOSE IS THE SAME BUT THE JOURNEY TO GET THERE IS MUCH SIMPLER

a diverse range of backgrounds and to have the challenge of solving a problem with no two problems being the same.

“I love being able to structure my day how I want, but also knowing that it all needs to get done by the end of the week, and just to be able to help people to achieve their goals. I find an inherent satisfaction in that.”

On what he’s learnt during his short time so far as a broker, Martinkovits has two pieces of advice for those new to the industry. “One is that they need to very early on determine what their niche is going to be; don’t try to be everything to everyone. And the second would be to know what their strengths are and to build on their strengths rather than trying to develop on their weaknesses. Play on your strengths.”

ANALYSIS 12

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Basel 4 bank regulations: what brokers need to know As banks transition to Basel 4 regulatory requirements, there will be both challenges and benefits for brokers, banks and consumers

F

Martin North

ollowing the shock of the GFC in 2007–8, which revealed that banks were not holding enough loss-absorbing capital for the risks they were taking, the international bank standard-setting body, the Basel Committee on Banking Supervision, developed the Basel III capital framework.

The Basel III framework sets out minimum requirements for higherand better-quality capital for banks globally, to ensure that the financial system is better placed to cope with future adverse shocks.

The technical implementation deadline for Basel III is 2019; however, recent developments in the banking market have suggested that even stricter rules may need to be applied by an updated framework, which has been dubbed ‘Basel 4’.

As Australian banks transition to Basel 4 regulatory requirements, there will be both challenges and benefits for brokers, banks and consumers.

WHAT ARE THE CHALLENGES?

Scott Manning

The proposals set out in Basel 4 could come at a cost to mortgage brokers, as a result of new income and debt serviceability calculations required by lenders.

According to the J.P. Morgan Australian Mortgage Industry Report (Vol 21), Basel 4 proposals require borrower debt serviceability levels to be calculated on a dynamic basis – that is, a borrower’s income generation needs to be tracked subsequent to loan approval.

Speaking at the release of the report, J.P. Morgan banking analyst Scott Manning told Australian Broker that this could come at a cost to brokers as it would be logistically difficult for mortgage brokers to undertake without access to transaction level details of the borrower, unlike what banks could have access to.

“It becomes a lot harder for a provider where the mortgage is originated through a mortgage broker [who] may not necessarily have that deposit account to track the income associated with the serviceability,” he said.

“… [I]n some way the ultimate provider of that credit would need to get comfortable that they can get information around the ongoing serviceability of [the borrower], and so brokers would have to look to effectively ensure they can provide that to the bank to meet those obligations.

“So, whether that be through a contractual element, whether that be through continual monitoring, or whether that be as technology changes through a live feed, such as the peer-to-peer guys are using in Yodlee, for example, any of that will ultimately cost more than what they are currently doing, so it is ultimately saying that there will be a higher cost to comply with that specific requirement.”

The transition to Basel 4 will also cost the major banks. Due to a fundamental shift in the way major banks assess risk and pricing within their mortgage portfolios, they could be left more exposed to changes in house prices.

Currently, major banks assess risk on their home loan book based on probability of default. However, under the new regulations, major banks will have to assess risk based on LVRs – that is, the higher the LVR, the higher the risk and the higher the price.

According to Martin North, principal of Digital Finance Analytics – who co-authored the report with J.P. Morgan – a focus on LVR to calculate risk will leave banks at risk if house prices ever suffer a drop.

“The LVR question is quite important when remembering that some of the loans are older, so therefore people have enjoyed capital lift in the value of their property, which means the LVR is down – and essentially, the risk weighting is lower,” he said. “But I would make the other point that we are assuming that house prices continue to rise.

“The reverse is also interesting: if prices begin to move down for any reason, then effectively those LVRs get squashed and at that point pricing changes and risk changes. So, essentially, the banks, I think, are more exposed to changes in house prices than

ANALYSIS brokernews.com.au

I CAN SEE BROKERS PLAYING A ROLE OF INCREASING IMPORTANCE IF THEY DO HAVE THE APPROPRIATE TOOLS IN PLACE TO IDENTIFY WHEN THEY LAST REFINANCED A CUSTOMER AND WHAT THAT DYNAMIC LVR WOULD BE, TO THEN CREATE THE OPPORTUNITY FOR A CONVERSATION TO REFINANCE – S COTT MANNING, J.P. MORGAN

they were under the old capital structures. “… we are going to see some very different dynamics in the market going forward, and probably a greater nervousness about maintaining the belief that house prices can only go in one direction.”

Assessing mortgage risk and pricing based on LVR buckets will also have flow-on challenges for some consumer segments, especially first home buyers, says North. “… People [who] already have assets or properties that they want to sell or move into a smaller place, and therefore need a lower-LVR loan, will be able to get the very best deals in the marketplace, and essentially other sectors will perhaps find it a little more difficult to get the sort of deal that they can get today.

“My expectation is that first home buyers will find the gradient even harder than it currently is, once the next round of capital increases flowthrough.”

According to the report, with revised proposals clearly providing a preference for low-LVR loans, “first home buyers may further be locked out of the market in an environment where approvals are already operating at historic lows”.

WHAT ARE THE BENEFITS?

Despite the cost Basel 4 will place on mortgage brokers, Manning says this

13

doesn’t mean that brokers – who now account for 51.9% of total new home lending – will have to give up some of their market share. In fact, brokers may be a key beneficiary of increased churn in the market, especially in refinancing activity.

According to the J.P. Morgan report, if Basel 4 mortgage risk weights are determined by LVR, and property valuations are held constant at the point of origination, this will provide an opportunity for new lenders to originate on a ‘dynamic LVR’ basis.

For example, when a customer is looking to refinance a mortgage, a new lender may consider the current market value of the property, whereas the existing lender cannot. This creates an advantage for a new lender if there has been significant property price appreciation to the point where the LVR falls into a lower bracket.

“I can see brokers playing a role of increasing importance if they do have the appropriate tools in place to identify when they’ve last refinanced a customer and what that dynamic LVR would be, to then create the opportunity for a conversation to refinance,” Manning told Australian Broker.

New Basel 4 regulations will also promote a more even playing field between the major and non-major banks, by applying a risk weight floor to the major banks. This will ultimately foster greater competition and choice in the banking market, benefiting brokers, banks and consumers.

Levelling the playing field between lenders was something that was heavily campaigned for in David Murray’s Financial System Inquiry.

“In the Inquiry’s view, the relative riskiness of mortgages between IRB and standardised banks does not justify one type of institution being required to hold twice as much capital for mortgages than another,” the final FSI report noted.

“Given that mortgages make up a significant portion of the assets of almost all Australian ADIs, competitive distortions in this area could have a large effect on their relative competitiveness. This may include inducing smaller ADIs to focus on higher-risk borrowers. Restricting the relative competitiveness of smaller ADIs will harm competition in the long run.”

By applying a 20% risk weight floor, the overall result of Basel 4 will see the advanced accredited major banks almost double their mortgage portfolio risk weights from approximately 17% to 30%, while the capital requirements of the standardised regional lenders will remain at a 40% risk weight.

ANALYSIS 14

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The price of success Brokers are quickly becoming a force within the mortgage market, but with greater consumer awareness comes greater risks

released in December, the FSI claimed that a recent survey of consumers found that 55% of consumers receiving financial advice from an entity owned by a large financial institution but operating under a different brand name were under the impression the entity was independent.

“The Inquiry believes greater transparency regarding the nature of advice and the ownership of advisers would help to build confidence and trust in the financial advice sector,” the report stated.

While the FSI noted that there is little evidence of differences in the quality of advice from independent firms versus vertically integrated firms, it said there was value to consumers in making ownership structures more transparent.

A GROWING NEED FOR PROPER EDUCATION

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ecent research commissioned by the MFAA reveals that the total broker market share of new home loan lending reached 51.9% in the March 2015 quarter, the highest result in the history of the MFAA survey.

But while increased consumer awareness can create positive attention for brokers – like driving more consumers to brokers – it can also create negative attention. As the role of the mortgage broker becomes more valuable in the home loan transaction, the scrutiny placed on mortgage brokers becomes more widespread.

CONSUMER CLAIMS AGAINST BROKERS ON THE RISE

According to Michael Gapes, a partner of Carter Newell Lawyers, increased consumer awareness of mortgage brokers means increased consumer awareness of rogue brokers. In fact, as the mortgage broking sector is attracting more attention in mainstream media, Gapes says this has caused a “marked increase” in the volume of claims against mortgage brokers.

“There have been some fairly spectacular and highly publicised claims against mortgage brokers in recent months. For instance, two brokers in Footscray [Myra Home Loans Pty Ltd] have been arrested and charged with conspiracy to defraud.

ASIC claims that they falsified more than 300 loan documents in support of applications totalling $110m, and they’re potentially facing 15 years imprisonment if

convicted,” he told Australian Broker.

“Then there was the Sahay one [Shiv Prakash Sahay] which was $7m and the Prasad one [Shashi Kanta Prasad] where she pleaded guilty to producing 41 fake documents seeking about $3.6m, and she was banned for 10 years.

“Those three matters were very highly publicised. The publicity that those, and other matters, generated may have prompted some consumers to consider making their own complaints about their broker.”

The most common type of claims Carter Newell is receiving against brokers relate to transparency and product recommendations.

According to Gapes, a perceived lack of transparency about bank ownership of broking groups concerns consumers, who feel ownership could affect the broker’s product recommendations.

“Consumers often don’t understand why a particular product has been recommended to them by their broker and they may well find out from a third party down the track that a different product would have given them a lower interest rate,” he said.

“Often they might not understand, for instance, that they don’t meet the criteria for that lower interest rate. What we’re finding – and we do a large volume of these claims – is that there is often a lack of comprehension on behalf of consumers about why a particular product has been recommended to them.”

This was a major theme for David Murray’s Financial Services Inquiry. In its final report,

Increased media and consumer attention calls for a growing need for proper education about the role mortgage brokers play in the market, and how they work. This is something that both industry associations – the MFAA and the FBAA – have recognised the long-term importance of.

At this year’s MFAA Conference, the MFAA’s chief executive Siobhan Hayden announced the approval of a $1m consumerfocused marketing campaign.

“Going around the country and talking to brokers, they were very clear about the importance of consumers being educated about the professionalism of brokers,” she told Australian Broker.

While the look and feel of the campaign and its execution is still to be determined, Hayden said initiatives such as a financial literacy campaign and research on broker professionalism and experience would underpin its message.

More recently, the MFAA announced it will be launching a fortnightly column on Domain.com.au, which attracts close to four million consumer searches a month, to represent the broker industry and educate consumers.

The Fairfax-owned real estate publication approached the MFAA after the release of its recent Observations on the value of mortgage broking report, prepared for the broker association by Ernst & Young.

“The Domain team were seeking a spokesperson who could share industry information that may assist consumers. After reviewing some of the interesting statistics about broker market share and consumer perceptions of the industry in our recent report, they contacted us directly with this opportunity,” Hayden said.

“Given that we represent the industry directly and already offer free consumer content to our members, we are in a strong position to support a major player like Domain. It’s important that the benefits of choosing a broker are properly communicated to consumers, and that our own MFAA brokers are the best educated in their field.”

The regular MFAA column will commence in the first week of July, with articles that cover everything from hints on getting the best loan, to relevant stats and feature interviews with well-recognised industry leaders.

ANALYSIS 15

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The FBAA has also been maintaining its commitment to continually engage with media across Australia, to promote finance brokers and the benefits of using an FBAA member. Over the last couple of months, CEO Peter White has been featured on television, radio and print media across Australia representing the broking sector.

WHAT CAN BROKERS DO?

In the wake of increasing media attention and increasing consumer awareness, Gapes says it is becoming absolutely critical for brokers to be diligent and comprehensive when it comes to documenting client meetings to avoid any unsavoury attention.

“That is why we say to our broker clients that it is absolutely critical that they file note all of their discussions with their clients and that those file notes are comprehensive, they are signed and dated, and they represent a true reflection of the entirety of their discussions with their clients,” he told Australian Broker.

THAT IS WHY WE SAY TO OUR BROKER CLIENTS THAT IT IS ABSOLUTELY CRITICAL THAT THEY FILE NOTE ALL OF THEIR DISCUSSIONS WITH THEIR CLIENTS AND THAT THOSE FILE NOTES ARE COMPREHENSIVE, THEY ARE SIGNED AND DATED, AND THEY REPRESENT A TRUE REFLECTION OF THE ENTIRETY OF THEIR DISCUSSIONS WITH THEIR CLIENTS - M ICHAEL GAPES, CARTER NEWELL LAWYERS

“And best practice would certainly dictate that brokers confirm any verbal advices provided to their clients about product selections in writing and explain why those recommendations have been made in detail. Brokers should invite their clients to come back to them if they have any further queries or require clarification about any of the recommendations or the contents of that letter.”

However, despite the increase in claims being brought against brokers, Gapes says that there has been no corresponding increase in the amount of brokers being brought to task.

“Whilst there has been a marked increase in claims against brokers, very few claims actually result in any damages payout or any actual findings of breach by the broker.

“In responding to these claims, it is often a matter of explaining why particular recommendations were made about a product and giving the client some context as to why the broker has made those recommendations. Often, once we’ve done this, the complaints are not pursued.

“But having said that, having a letter of complaint or claim brought against you is an incredibly stressful experience.”

BROKER MARKET SHARE TO CONTINUE RISING

Despite some of the bitter side effects of increasing fame, it still stands as testament to the fact that brokers are a force in the mortgage market.

Based on housing finance commitments from the Australian Bureau of Statistics, mortgage brokers were responsible for 71% of the growth in the residential mortgage market in the 12 months to March 2015 – and will only continue to grow.

Data from the 2015 QBE Barometer report, released in April, suggests that the number of consumers who choose to use a broker is likely to rise as younger generations begin to penetrate the property market.

The report reveals that younger respondents were more likely than older respondents to go through a broker, with 39% of those under 45 years using a broker compared to 31% of those over 45 years.

Further, the number of people surveyed who rejected dealing with banks has increased significantly compared to last year, from 9% to 16%. While this hasn’t materially affected the share of mortgage lending currently, with the number of respondents choosing to go direct to a lender remaining steady overall compared to last year’s survey, the report does admit that “it may be an early indicator of future sentiment if the trend continues”.

Jenny Boddington, financial institutions EGM and CEO of QBE LMI, told Australian Broker that mortgage broking has been hugely benefited by regulation, specifically the introduction of the NCCP in 2009. As a result, younger people are likely to look upon the mortgage broking ‘brand’ more favourably than older generations, and are more likely to use a mortgage broker.

According to the MFAA’s recently published Observations on the value of mortgage broking report, consumers believe that brokers can provide access to a wider range of mortgage products than banks or other financial organisations.

Almost half of the respondents (47%) said going through a broker will provide better choice, compared to 15% who said going direct to a bank was better.

Further, 38% of consumers said going through a broker was also better to ensure they get a product matched to their needs, compared to 18% of consumers who said they would prefer to go direct through a bank to get the most suitable product.

BEST PRACTICE 16

Building your brand through social media

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10 TIPS TO SOCIAL MEDIA SUCCESS Jay Pring, managing director of Obviam Creative Social Media, has 10 top tips to help brokers with their digital and social media activity.

1 ENGAGE IN TWO-WAY CONVERSATION

Mortgage brokers should be embracing social media to build brand awareness, according to one young brokerage

If re-posting something interesting, add your own opinion or question; that way people can interact with you and spark discussion.

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2 DON’T BRAG

hilst brokers shouldn’t expect social media to be a direct lead generator, Tommy Lim, founder and managing director of Sydney-based SF Capital says that their innovative ‘Eat On Us’ Facebook campaign proves how powerful social media can be in helping brokers build brand awareness.

“Social media is excellent for building awareness, engagement and a profile for your business,” he tells Australian Broker.

“I wouldn’t see it as a tool for direct lead generation, but in terms of communicating with your audience – both existing clients and potential clients – it is an excellent tool.”

The campaign, which was run over April, encouraged consumers to enter a competition by posting a description of what their dream home would look like on the SF Capital Facebook page.

The three winners of the competition won a meal at a Sydney restaurant of their choice, paid for by SF Capital.

Over the life of the campaign, the competition saw more than 400 likes, comments, and shares from consumers and clients.

“Social media helps a good news story spread fast… If there’s something that is inherently social and worthy to be shared, it spreads faster – that is the real power of it,” Lim says.

“It is also quite cost effective to run. If you put effort into thinking of the right story and message you want to convey to your audience, then you can save on marketing dollars.”

With Generation Y set to dominate the financial space of the next few decades, a broker’s online presence will become increasingly more important.

Whilst almost four in five internet-savvy Gen Ys still prefer face-to-face service when it comes to a home loan, according to a recent report by KPMG, online research is the prevailing way that Gen Ys choose their financial products.

The report reveals that one-third of Gen Y consumers will go online compared to one-quarter who will rely on referrals from family or friends.

According to Lim, social media can be a powerful tool for brokers to bridge that gap between the online and the offline.

“I think the principles of good service haven’t changed. We still offer a very face-to-face and traditional service in the client relationship and interaction sense. I have not chosen to take that relationship online, purely because the experience is one of trust and ongoing relationship,” he tells Australian Broker.

“We are a very serviceorientated firm, but we use technology to reach our audience and communicate with them.”

You might love your recent successes, but most social media audiences won’t care. Add context to your success stories to ensure you have meaning and relevance to your posts.

3 GIVE A PROPER RESPONSE Don’t just say thanks if someone has posted a comment. Add a more personalised response.

4 POST DIFFERENT CONTENT ON EACH PLATFORM No one wants to read the same message from you on Twitter, Facebook, Instagram, LinkedIn, etc.

It shows a lack of creativity and fails to consider the unique benefits of the various platforms you employ.

5 BE CONSISTENT WITH YOUR TOPICS If a certain post gained a lot of attention it means that people want to hear or see more. Make a second post asking your fans for their opinion.

6 DON’T ACT LIKE THE AUTHORITY If you’re well informed about a topic, that doesn’t give you the right to act as an authority figure in your posts.

Don’t talk down to your fans.This could come off as intimidating or even unappealing.

7 USE LINKEDIN AT LEAST ONCE A DAY LinkedIn is a great place to connect with old colleagues, classmates, or customers. It’s a great way to promote your professional services.

8 ADD A LITTLE HUMOUR Who wants a bland brand? Spice up your posts with some gentle, thoughtprovoking humour. But avoid sexism, racism or religion so as not to offend.

9 ASK AND YOU WON’T RECEIVE Asking people to like and follow you isn’t very effective. Give them compelling content and a reason to follow you and share your posts.

10 DO NOT USE TRAGEDY FOR PROMOTION Brands have burned and suffered by using a tragedy to promote themselves.It’s not only incredibly disrespectful, but it shines a terrible light on your brand and your personality. No apology can fix this type of disaster.

NEWS 18

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John Flavell: Protecting affordable advice The Mortgage Choice chief on the franchise’s move to a more holistic offering

F

lavell says his array of experience in financial services has prepared him well for taking the reins of Mortgage Choice. Having served as general manager of distribution for NAB Broker before moving on to become executive general manager of wealth advice at the bank, Flavell has worked on both sides of the balance sheet.

“That background, having worked on the broker side before, having worked on the lender side before, and then more recently having been responsible for the wealth advice business for National Australia Bank has given me a lot of experience on all sides of the fence, and I think that will certainly enable me to deliver some value to the enterprise and build on the proposition to our end customers,” Flavell said.

In moving on from his role at NAB, Flavell said he was pleased to remain in retail financial services.

“It’s an industry that I’m very passionate about, the retail financial services industry. I’ve been involved in retail financial services for 18-odd years now, and I think that the fact that it’s an industry whereby you’re meeting the needs of mum and dad and you’re working with them to assist them in achieving their financial objectives is a really wonderful opportunity. It’s an industry I’ve always thoroughly enjoyed,” he said.

And Flavell’s move to Mortgage Choice is well timed. The brokerage last year officially launched its financial planning arm. Flavell said it was natural that, as the company’s broker network grew, its financial advice arm should grow as well.

“The network has grown quite significantly over the last 12 months.

We’ve increased our lender numbers by 70, so there’s 570 Mortgage Choice lenders in the field at the moment.

We’ve also grown our financial adviser numbers to over 40 now. I think if you look at debt and you look at wealth advice, then the two go hand in hand.

So our focus for this next 12 months and beyond will be about saying, ‘OK, how can we better and more comprehensively understand our customers’ needs? How can we actually deal to their needs for protection, and also investment and wealth advice, at the same time that we’re addressing their debt needs?’ It’s a very strong proposition, so we’ll continue to grow that out and deliver more of that to more of our customers,” Flavell said.

SHIFTING TIMES FOR ADVICE

The franchise’s expansion into advice had come an opportune time, Flavell

I THINK THE BROKING INDUSTRY IS ALREADY WELL ADVANCED RELATIVE TO OTHER INDUSTRIES

NEWS

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suggested. He said the recent Financial System Inquiry had highlighted the growing need for affordable financial advice.

“If you go back and you look at FOFA before the FSI, Mortgage Choice is very much aligned with the goals of FOFA, which is delivering affordable, quality advice to as many Australians as we possibly can. We’re a very well superannuated nation. There’s $1.8trn in superannuation. It sounds like a lot, but there’s still a gap of over $1trn. A regulatory and legislative environment that assists consumers in getting access to affordable, quality advice is something we should all be focused on.

I think that with the FSI, as much as that’s addressed some of the opportunities for enhancements, we’re supportive of it,” Flavell said.

But Flavell said not all of the recommendations of the FSI were positive news for the advice sector.

In particular, he pointed to the Trowbridge Report as a potentially troubling development.

A REGULATORY AND LEGISLATIVE ENVIRONMENT THAT ASSISTS CONSUMERS IN GETTING ACCESS TO AFFORDABLE, QUALITY ADVICE IS SOMETHING WE SHOULD ALL BE FOCUSED ON

“I am concerned with some of the recommendations in the Trowbridge Report. Namely, our concern is that group of Australians – those people that are the wealth accumulators, that are building their financial future – if the recommendations of the Trowbridge Report are adopted, then I think that’s going to put at risk that sector of the community that’s most in need of financial advisers. Our concern is that there would be less people’s needs being met in that sector,” he said.

Specifically, Flavell said Trowbridge’s recommendations could hamper the economics around insurance advice.

“He suggests that there’s a cap in terms of the fee that’s charged at origination for insurance, and that cap is to be $1,200 and 20% of the first year’s premium, and then 20% of the premium on an ongoing basis,” Flavell said. “If you have a look at that and you look at the economics around it from an adviser’s perspective, then the process of going out and acquiring would-be customers then actually assessing their needs and getting their needs met, the economics around the suggested model that Trowbridge has put forward don’t

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add up. Trowbridge himself says that in his report. His recommendation then is that advisers charge clients an additional fee for those services. But his own report says that that sector of the community – the wealth accumulators – that if you charge them a fee for advice, then the participation rate drops exponentially. So on one hand he’s saying it’s not economical for the advisers and he’s recommending they charge a fee to get the economics right, but then he’s saying that consumers will drop out in droves.”

This could have the effect of shutting many Australians out of financial advice, Flavell fears.

“What you’ll end up with is a large proportion of the population who are most at risk, whose protection needs are not being met, and that is not consistent with the objectives of the Future of Financial Advice legislation.

That’s about making quality financial advice available and affordable to large proportion of the population, so it doesn’t actually deliver to that objective. Subsequently, we are opposed to it.”

BETTER TIMES FOR BROKERS

There may be some troubling rhetoric surrounding financial advice, but the regulatory environment for brokers had delivered benefits, Flavell argued.

He said the NCCP legislation had ultimately enhanced brokers’ proposition in the eyes of consumers.

“We had the National Consumer Credit Protection legislation some years ago. From an industry perspective then, we’ve already gone a long way. I think as an industry we’ve got accountability and transparency.

It’s a great foundation for an industry to continue to grow and thrive. In part, maybe that’s why the proportion of the mortgage market that’s being originated by mortgage brokers has continued to grow to more than 50%,” Flavell said.

This regulatory framework meant mortgage broking was a mature industry, Flavell suggested. He said the FSI largely seemed to understand this.

“I think the broking industry is already well advanced relative to other industries, and I think the recommendations within the FSI acknowledge that and complement where we already are. Most professionals that I speak to are already operating at a level of professionalism that’s beyond legislation. They’re already seeing the benefits in terms of the quality of advice they provide their clients, the transparency, the value proposition that they deliver; they’ve already seen the benefits associated with that,” Flavell said.

While there could be regulatory changes in the future, Flavell argued that brokers already operating responsibly would have no trouble adjusting.

WHAT’S AHEAD FOR HOUSING John Flavell has been vocal in his opinion that a property bubble does not exist in Australia. However, this doesn’t mean that home loan demand will keep growing at its current pace.

Flavell says low interest rates are keeping housing very popular with potential home buyers and property investors.

“Rates are sitting at all-time lows, which is encouraging all types of potential buyers to take the leap and purchase property,” he said. “We haven’t seen this level of demand for home loans since 2009 when the boosted First Home Owner Grants were in place.”

With the current demand for home loans, home values are also increasing month after month, and CoreLogic RP Data figures showed a 0.8% growth in dwelling values across the combined capital cities over April.

“Over the last 12 months, Sydney has outperformed every other capital city in terms of property price growth, with values climbing 14.5% year-on-year,” Flavell said.

However, Flavell said he wouldn’t be surprised to see the rate of growth start to slow as some of the recent changes to lender policy started to take effect.

“Over the past month and in line with requests from the Australian Prudential Regulation Authority, many of Australia’s lenders have started to make some significant changes in the areas of policy and pricing in an endeavour to limit lending growth to investors,” he said.

“As these changes start to take effect, I think we may see a slight reduction in investor demand and the overall value of all dwelling commitments.”

“If there are people who are going to be impacted by additional regulatory changes, they’re probably already at the lower end of the spectrum in terms of what they deliver to their customers.

If that strengthens and pushes people to do more, then that’s good for the industry.”

SPECIAL REPORT

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Education and training: Growing yourself to grow your business PLAN Australia chief Phil Quin-Conroy says the most successful brokers look for ways to evolve

SPONSOR’S MESSAGE

At PLAN Australia we are passionate about the value of ongoing training and development.

We invest heavily in services to help brokers grow their business and professional development is a critical component of that investment.

Training and education can have a significant impact on a broker’s bottom line and we are seeing more and more brokers embrace the opportunity it presents.

From industry-specific expertise to professional development and business building skills, there are a range of areas where brokers can look to develop and grow.

It’s not just new-to-industry brokers or younger entrants who should consider ongoing training and education. In my experience, the most successful brokers are those who are constantly developing their skills and are open-minded about approaching business in different ways.

Our industry is a competitive one and the pace of change and evolution is increasing. Brokers who embrace training and education will be best placed for future business success.

I hope you enjoy this dedicated feature on training and development.

Phil Quin-Conroy CEO, PLAN Australia

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Royden D’Vaz, National Sales Manager, Bluestone

hen the MFAA announced in 2011 that it would require brokers to obtain their Diploma in order to remain members, there was a degree of panic. The nascent licensing regime had set a minimum requirement of a Certificate IV for brokers, and some industry participants felt the MFAA’s decision to up the educational stakes above and beyond what regulation required was a mistake. Nevertheless, the vast majority of brokers obtained their Diplomas, and the MFAA has used its higher barriers to entry as a selling point to consumers.

Even as the Diploma debate came and went, ongoing education and training have remained key resources for brokers looking to grow their businesses. Not only does the NCCP require ongoing education, PLAN Australia chief executive Phil Quin-Conroy has said the best brokers are proactive about obtaining it.

“First and foremost, there’s an ongoing training requirement as part of the licensing regime, but I think the majority of brokers who embrace those opportunities do it not because they have to but because they recognise that we’re in a dynamic and fast changing business

Sponsored by brokernews.com.au

environment. Staying up with the latest trends and being openminded to new trends that help them be successful is the reason why the majority of brokers commit to education and training,” QuinConroy said.

According to Quin-Conroy, the delivery of education and training opportunities is one of the services that makes PLAN unique among aggregators.

“We see the delivery of training and education as a real differentiator for PLAN Australia based on the impact it can have and the demand we have from brokers.

We actively invest in it quite heavily,” he said. “Our model focuses on three areas of impact for brokers: external support, leading technology and delivery of value-add services to stay ahead of the pack. We see the training and education component of our service offering falling into that value add category.”

As the market for aggregators becomes more competitive and brokers demonstrate more market power, brokers expect more services from their aggregators. For PLAN, Quin-Conroy said education and training was a natural value add for the company.

WE FIND THE VAST MAJORITY OF BROKERS GO ABOVE AND BEYOND THE MINIMUM REQUIREMENT

“We choose to focus in on it. It ties in with our objective of delivering premium aggregation services to brokers who are business-oriented, so it’s a good fit for us. Our value proposition is helping finance brokers’ businesses grow, so it lines up with our value proposition.

There’s plenty of training and education opportunities made available to brokers from the industry, and we support and encourage those, be we also wanted to supplement those,” Quin-Conroy said.

LEVERAGING THE OPPORTUNITIES

While there may have been backlash over the introduction of the Diploma, when it comes to ongoing education and training, Quin-Conroy said most brokers see the value.

“We find the vast majority of brokers go above and beyond the minimum requirement. When we

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introduce a new initiative to help brokers think differently around the way they run their business, in the majority of instances it is the most successful brokers who are the first to adopt it,” he said.

Quin-Conroy said successful brokers recognise the need for continued learning, and are always on the lookout for better ways of doing business.

“One of the reasons they’re successful is they realise they need to be open-minded to the way they’re doing things, and they realise they don’t have all the answers. The ones who realise the need to constantly evolve to excel are the ones who are most successful,” he said.

For PLAN’s part, Quin-Conroy said the aggregator looks to deliver its education and training opportunities in formats that best serve its members.

“We deliver a comprehensive program that has a strong emphasis on enabling and encouraging growth, and we have recognised we need to deliver that comprehensive program in a variety of formats,” he said.

On a practical level, this takes the form of the aggregator’s national conference, face-to-face PD days, online tutorials and webinars.

“We’re always looking to leverage technology to deliver training formats in new and innovative ways,” he said.

To this end, the aggregator recently launched its inaugural Commercial & Asset Finance Digital Summit. Featuring a series of 12 live stream webinars across two full days, Quin-Conroy said the inaugural PLAN Australia Digital Summit attracted significant interest from its members.

“PLAN Australia is committed to supporting our brokers to grow through premium aggregation services and market-leading education and training opportunities and this is just another example of our commitment to innovation for the benefit of our brokers,” Plan Australia CEO Phil Quin-Conroy said.

“We are thrilled our very first Digital Summit has been met with such an enthusiastic response from our brokers.”

While PLAN Australia’s traditional PD days are well attended by brokers, Quin-Conroy said digital training initiatives offered brokers another chance to ‘top up’ in areas of interest without spending time and resources on travel or taking a full day out of the office.

“We are seeing record attendance at our PD days and with strong interest in our new Digital Summit it is clear there is a real hunger amongst brokers for business insights and professional development opportunities that they can leverage to grow their businesses,” he said.

“Progress is at the heart of the PLAN Australia business proposition. We will continue to evolve and innovate the way we deliver training services to our members and look forward to bringing more exciting new developments like our Digital Summit to market in the future.”

All of this serves one purpose, Quin-Conroy said: helping brokers run their businesses more successfully.

“We assist with training and education around being the best possible business owners they can be.”

BY THE NUMBERS

3.92 Brokers in MPA’s Brokers on Aggregators survey ranked aggregators a 3.92 out of 5 for providing quality education and training, up slightly from 3.91 in 2014 Source: MPA

MARKET TALK

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The bubble battle rages on

Once again, pundits are at odds over the existence of a property bubble in Australia

Greg Medcraft

Harley Dale

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he spectre of an Australian property bubble just won’t disappear. While property doomsayers seem to have eased up on talk of a nationwide bubble, attention has turned to rapid price appreciation in Sydney and Melbourne. Most recently, ASIC has expressed concerns over rising house prices causing a property bubble, just as the Reserve Bank of New Zealand announced new restrictions on lending to investors in Auckland.

In an interview with the Australian Financial Review, ASIC chairman

Greg Medcraft warned that rising house prices in Sydney and Melbourne were showing signs of a property bubble.

“History shows that people don’t know when they are in a bubble until it’s over,” Medcraft told the AFR. “I am quite worried about the Sydney and Melbourne property markets. In housing, the long-term average income to average price ratio is four to five times but at the moment it is at historic highs.”

The ASIC chairman said the Reserve Bank of Australia’s decision to cut rates to a historic low of 2% in May was fuelling investor demand.

“There is always danger when rates get so low. That’s when people start borrowing when they can’t afford it.

What generally happens is rates start to rise which affects your ability to pay, and rate rises can actually bust a bubble, so you end up with a double whammy,” he said.

Medcraft’s comments come just after the Reserve Bank of New Zealand announced that starting 1 October 2015, bank lending to home investors in Auckland will be restricted to mortgages with an LVR of less than 70%.

“We are proposing these adjustments to the LVR policy to more directly target investor activity in the Auckland region, where house prices relative to incomes and rent are far more elevated than elsewhere in New Zealand,” Reserve Bank governor, Graeme Wheeler said.

“The objective of this policy is to promote financial stability by reducing the rate of increase in Auckland house prices, and to improve the resilience of the banking system to a potential downturn in the Auckland housing market.”

According to CoreLogic RP Data, Auckland house prices increased by 14.6% over the year to March 2015.

The RBNZ reports that about 40% of mortgage originations in Auckland are to investors.

Meanwhile, CoreLogic RP Data statistics reveal Sydney house prices increased by 14.5% in the year to March 2015, while the RBA reports that about 45% of home loan approvals in Sydney are to investors.

IGNORING THE REAL PROBLEM

But the HIA has challenged these claims, saying that widespread speculation about a housing bubble ignores the real culprits of Australia’s housing affordability problems.

According to Housing Industry Association chief economist, Harley Dale, we wouldn’t be having this conversation if Australia would get the “disproportionately high level of taxation” off new homes and improve the supply of new housing.

“The truth is that most of the problems having an impact on housing affordability are caused by governments and therefore governments can fix them,” he said.

“The two biggest taxes on a new home are stamp duty and GST – the latter which doesn’t apply to existing homes – and when combined with all the other taxes, levies and charges on a new home can be over 40% of the final price.”

In fact, new housing is the second most heavily taxed major sector of the Australian economy, according to Dale.

HISTORY SHOWS THAT PEOPLE DON’T KNOW WHEN THEY ARE IN A BUBBLE UNTIL IT’S OVER - G REG MEDCRAFT, ASIC Further, Dale says that delays in planning and restrictions on land supply mean that new housing is not reaching the market quick enough to respond to demand, which ultimately puts upward pressure on prices.

This argument echoes comments from Mortgage Choice chief John Flavell, who has also dismissed claims that there is a property price bubble in Sydney, and to a lesser extent Melbourne, instead saying it is more just a case of supply and demand.

“If you are prepared to believe basic rules of supply and demand do not apply to the Sydney and Melbourne property markets, and if you believe the population is about to go backwards overnight…

“If you believe that we will be able to manufacture new land close to the heart of our busiest urban centres, if you believe that we are all about to flee to the country and there is a fleet of trains that could take us there and if you believe we all want to move our families into studio apartments and forego our houses, then you just might believe that a property bubble exists in Sydney and Melbourne.”

MARKET TALK brokernews.com.au

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Negative gearing not going anywhere While negative gearing is a constant source of debate, one expert says it’s here to stay

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urrent talk about the future of negative gearing is unlikely to result in any changes to the system according to one investment expert.

A proposal put forward by the Greens would see negative gearing scrapped and the increased tax revenue used to build affordable housing, but Positive Real Estate chief executive officer Sam Saggers believes the plan is just the latest in a long line of ideas that have never got off the ground.

“Ever since negative gearing was introduced, people have been talking about things like this – this is nothing new compared to what we’ve been hearing for the last 20 years,” Saggers said.

“I don’t have a crystal ball, but I don’t think the government is going to do anything at all to it.”

While some people believe investors are using negative gearing to avoid paying their fair share of tax, Saggers says the system isn’t a huge benefit to every investor.

“The people who are getting the real benefit out of negative gearing are the investors who have five, six or seven or more properties, and I think the ABS had statistics that there’s only about 15,000 of such people in Australia,” he said.

“Most people own their own home and one investment property if they’re

lucky and negative gearing might save them $4,000 or $5,000 a year.”

According to costings from the independent Parliamentary Budget Office, the Greens’ policy would save the government $2.9bn by 2020 and $42.5bn over 10 years.

Part of that money would then be used to build housing for the homeless or those on public housing waiting lists.

While the Greens argue that getting rid of negative gearing would allow for the construction of affordable housing, others believe it will make finding somewhere to live harder for low income earners.

The Real Estate Institute of Queensland believes the plan will turn investors off housing and result in housing stocks dwindling, something Saggers agrees with.

“If you remove it, you make property a less attractive asset class for investors, and if you remove them housing stock will dwindle and rents are going to rise.

“The thing that needs to be thrown into the conversation about negative gearing is that there are a lot of taxes around property in Australia.

“In New Zealand, you don’t have to pay stamp duty, which is a tax and then if you sell your house you’re hit with capital gains tax so the government does get its fair share of revenue from taxes on property.”

DID YOU KNOW?

195 The ATO recently said 195 property sales were being investigated for possibly breaching laws that require foreign investors to receive approval from the FIRB before buying existing residential real estate Source: ATO

ILLEGAL INVESTORS COME FORWARD AFTER AMNESTY ANNOUNCEMENT More than 20 foreign investors have declared themselves to the Foreign Investment Review Board (FIRB), believing they may have purchased property illegally.

The Australian Taxation Office (ATO) recently said 195 property sales were being investigated for possibly breaching laws that require foreign investors to receive approval from the FIRB before buying existing residential real estate.

A statement from the Treasury Department said 24 declarations had been made to the FIRB as foreign investors take advantage of an amnesty that will see them escape prosecution if they come forward before November 30.

In the statement, Treasurer Joe Hockey said the properties under investigation range from prestige real estate through to suburban properties.

One investigation is centred on a foreign investor with links to 10 properties including a house worth $1.4m and a $300,000 unit.

Another case is likely to see a British investor sell a $700,000 Western Australia property they bought in March.

“If the investor takes advantage of a voluntary divestment, it will be the second divestment since March,” Hockey said in the Treasury statement.

“Foreign investors who think they may have broken the rules should come to us before we come to them.

“They will still be forced to sell the properties, but will not be referred for criminal prosecution if they voluntarily come forward before 30 November.”

After the amnesty has ended, foreign investors found to have illegally bought property will face stiff penalties.

From 1 December, individual foreign residents who breach foreign investment laws will face fines of up to $127,500 or three years in prison, while companies will face fines of up to $637,500.

The government also plans to introduce legislation to punish third parties who assist foreign investors in breaking the law after the ATO revealed in many cases relatives and ‘straw’ company directors were being used to bypass the laws.

“Third parties who knowingly assist a foreign investor to breach the rules will also be subject to civil and criminal penalties, including fines of $45,000 for individuals and $225,000 for companies,” the statement warned.

FINANCIAL SERVICES 24

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RECORD HIGH INVESTMENT LENDING SET TO SLOW Loans to investors have surged more than 100% in less than four years, according to official figures, but the record growth isn’t expected to last much longer.

Recent figures released by the Australian Bureau of Statistics reveal that investors committed to $12.9bn in housing finance in March 2015, compared to a recent low of $6.3bn in April 2011.

“The recent rise to $12.9bn has seen the value of commitments Cameron Kusher rise 105% in less than four years,” CoreLogic RP Data researcher Cameron Kusher said when commenting on the data.

New South Wales accounts for the majority of investor interest, currently holding 46% of all investor mortgage commitments. In fact, the value of commitments in NSW is greater than the value of all states and territories combined, except for WA, according to Kusher. However, this data largely reflects what is happening in Sydney, which has experienced a significant rise in investment over the last three years.

But growth in excess of 100% isn’t expected to continue, as Kusher predicts the APRA crackdown in investor lending will slow the demand.

“After APRA wrote to Australian banks, credit unions and building societies late last year re-affirming sound residential mortgage policies, we have recently started to see many banks change their lending policies. A large focus of these changes has been around investment mortgages, and over the coming months we should eventually see investment lending start to slow,” he said.

ASIC BANS INTERNATIONAL FINANCE FRAUDSTER

FAST FACT

105% The value of investor loan commitments has risen 105% in less than four years Source: CoreLogic RP Data

Major hack highlights new side to cyber risk

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he branch of a multi-national business based in Brisbane has been the target of an online attack with extortion playing a key role.

The unnamed business was the target of a ransom-style attack, where records and computers were frozen until a ransom was paid, but upon payment the attackers began targeting the family of a senior executive, The Guardian reports.

The ransom, which is believed to have been thousands of dollars’ worth of online currency bitcoin, was paid out after an initial attack earlier in the year, but the company refused a larger ransom and the attackers began to target the children of one senior executive.

“This was a very serious attack on an organisation and quite traumatic for the business, the victim and his family,” Queensland police acting assistant commissioner Brian Hay said.

Neil Fergus, chief executive of Intelligent Risks – a leading specialist management services company which deals with crisis management – noted that “every medium and large sized business in Australia should have an insurance policy that provides it with cover for extortion, and preferably provides access to skilled and experienced crisis management responders.”

ASIC has permanently banned a New Zealand man from providing financial services as a result of a conviction for serious fraud.

Shaun Gregory Morgan, a New Zealand citizen, was the subject of an ASIC consumer warning earlier this year, concerning his offering of unlicensed financial services through a number of websites that indicated companies operated by him held AFS licences and would raise funds.

ASIC’s warning, sent out in February, warned consumers that Morgan himself did not hold an AFS licence and the companies associated with him – Australian Capital Investment Group Pty Ltd and Aussie Prime Securities Pty Ltd – also did not hold an AFS licence.

However, Morgan’s history of swindling financial consumers dates back to 2009, and is international.

According to ASIC, court documents established that on 22 December 2009 Morgan pleaded guilty to one count of bank fraud in the United States District Court, Central District of Utah involving false claims to be able to raise capital, and counterfeit cheques drawn on a fictitious bank.

He represented that he was an officer of First Mutual Bank, a fictitious bank located in the UK. He claimed that this bank had money available to purchase companies and properties, and to provide lines of credit and real estate bonds.

The scheme required borrowers to open an account at First Mutual as collateral or an advice fee for the line of credit or underwriting of the bonds. Morgan admitted he used these deposits for his personal benefit.

As a consequence, he was sentenced to a term of 60 months imprisonment and a term of supervised release of 60 months. He was also required to forfeit US$1.06m in cash and stock certificates along with other assets.

a

ASIC WEIGHS IN ON INSURANCE DISCLOSURE ASIC has welcomed improvements made by credit card providers surrounding the travel insurance provided with certain cards.

The regulator reviewed 17 credit card brands from a range of issuers including Australia’s big four banks, following complaints from consumers.

The Financial Ombudsman Service (FOS) received complaints concerning uncertainty around credit card policies such as who was covered, what was covered and who issued each policy.

The review has led to four changes surrounding the products as both insurers and credit card issuers have agreed to clarify when insurance cover is ‘activated’, particularly around minimum spend thresholds, and provide clearer and more prominent information concerning documentation needed to make a claim.

Both insurers and issuers will also clarify supplementary card holder status surrounding the insurance and the use of reward points and its role in insurance activation.

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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 2014

IMF is wrong on housing bubble, argues economist

The IMF last year echoed its longstanding warnings that Australian house prices were becoming unsustainable. It was an assertion rubbished by Griffith University economics professor Ross Guest. Guest argued that the IMF’s measures ignored the proportion of household disposable income spent on loan repayments, which he said was around the average of the last 30 years.

What’s happened since?

It seems as long as Australian house prices remain high, there will be no shortage of pundits forecasting a precipitous decline. Most recently, Treasury secretary John Fraser told a Senate hearing that Sydney is “unequivocally” in a housing bubble, as well as some parts of Melbourne. Unsurprisingly, the comments have been dismissed by mortgage and housing industry figures, with Mortgage Choice chief John Flavell saying high prices in the cities were a natural function of supply and demand.

Investors grab nearly half of the housing market ABS figures last year showed investor finance commitments rising to a high, accounting for 39.4% of the overall housing market. The figure was the highest since December 2013, when investor loans accounted for 39.6% of the market. The increase came on the back of a decline in first homebuyer participation.

What’s happened since?

Investors have been particularly active over the year, surging more than 100% in less than four years. The influx of investors has seen APRA warn banks to wind back investment lending. The banks have taken notice, removing incentives, raising interest rates and slashing LVRs. CoreLogic RP Data analyst Cameron Kusher said the strategy is likely to work, and investor appetite is forecast to slow in the coming months.

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Aggregators look to add value

A

s brokers gain more market power, aggregators find themselves having to lift their game.

Brokers now expect more than a panel of lenders from their aggregator. They want help with their business. At the MFAA Annual Stephen Moore Convention in Melbourne, Australian Broker TV spoke with the heads of major aggregators about how they’re differentiating their service offering in a competitive market.

Choice Aggregation Services chief executive Stephen Moore said helping brokers build their business was one of the fundamental value Brendan Wright propositions of Choice.

“We acknowledge that brokers have different needs, different businesses and different stages of development. We spend the time with each individual broker to truly understand their needs, and then we tailor up support specifically for them,” he said.

FAST CEO Brendan Wright said the aggregator’s BDMs focused on having “B2B” conversations with brokers.

“Our value proposition is around spending the time and understanding the broker’s strategy in their business, whatever that might be,” Wright said.

Wright said the aggregator provided insurance and wealth options to help brokers better serve their clients, but that the key to adding value was taking time to understand each broker’s business strategy.

PLAN Australia CEO Phil Quin-Conroy said the aggregator worked to understand its brokers’ growth aspirations. “[We] potentially share with them the ways they can grow their business. We don’t believe there’s any one model for success in growing a broker’s business.

It depends on what the skill sets are for the business, so we’ll look to understand where a broker is at, where they want to get to, and facilitate their growth aspirations,” Quin-Conroy said.

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

FORUM 27

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Housing bubble talk still making headlines Talk of a housing bubble won’t die, despite being dismissed by industry pundits

T

he HIA recently dismissed claims of a property price bubble in Australia, saying that widespread speculation about a housing bubble ignores the real culprits of Australia’s housing affordability problems.

According to Housing Industry Association chief economist Harley Dale, we wouldn’t be having this conversation if Australia would get the “disproportionately high level of taxation” off new homes and improve the supply of new housing.

Joe Siragusa said it may be time to take another look at negative gearing.

“Is it time to review negative gearing which also distorts the market? I suggest that unless the investor can demonstrate that the property will be positively geared within, say, three years, then within three years the negative gearing ceases. Similar to the ATO ruling on hobby farms – unless it can be shown that the venture has a chance and/or a plan of being profitable, then the tax deductions are no longer available. It will stop the practice of debt shifting to the investment loan from the non-tax deductible home loan.”

Michael Kent argued that some of the high price of housing was coming from commissions factored in by developers.

“One of the reasons MOST house-and-land packages are over-priced are these over-thetop commissions that developers are factoring in. $20,000-30,000 commission is simply a rort. A

friend of mine recently tried to justify why they should be paid this amount when sometimes all they are doing is handing over a name and number to a sales agent who does the rest. There is a reason why 45% of house-andland valuations come up short.

It’s because this $20,000-30,000 commission has to come from somewhere. It is added to the price to the consumer.”

Ada Vale predicted that an investment-driven bubble would eventually burst.

“Low interest rates, investors and banks are the cause of high housing prices. There are towns in regional Queensland with 500 new homes built and sold to investors with guaranteed rents for 12 months. Upon visiting their investment house, owners found them empty! Yes, the price was inflated to accommodate the 12 months of rent. When those houses come on the market and the RBA begins to lift interest rates, we’ll be hit by an exploding housing bubble.”

And John said land release and government greed were the real roots of the problem.

“Having worked in the building trade, I have no doubt that the lack of supply of land and the associated greed of governments are the main reasons house prices are so high.

Go 20km from any town/city centre and there is land as far as the eye can see. Land in this country should be really cheap given the amount that we have, but as long as greedy governments manipulate the market, home ownership will continue to be a dream.”

t BUBBLE OR NO BUBBLE?

Mortgage Choice CEO John Flavell dismissed speculation of a property bubble in Sydney and Melbourne, saying high prices were simply a function of supply and demand.

One commenter said the issue was more complex.

“The bubble is not a simple function of supply and demand for housing as expressed here.

It’s a function of increased pressures on the property market due to government subsidies offered to investors. These legislated subsidies for investors cause over-investment in property by making it a more attractive investment than it otherwise would be. That exaggerated property demand causes prices to rise. Any changes in the investment-encouraging legislation will burst that bubble, but the changes have to happen because most residential property exists to shelter people, not to make investors wealthy. So, for social reasons, at some stage the government needs to choose between damaging the economy because they remove investor incentives, which will cause a potentially massive drop in property prices or otherwise have a major increase in homeless population due to people being unable to afford housing on either an ownership or rental basis. It’s like the idea that the baby bonus causes people to have more children. That’s great if you have a diminishing population issue where jobs will be vacant and the elderly uncared for, but is a huge problem if you’re over-populated, can’t feed your people or cannot provide other necessary services. In this case, the government chose to stimulate investment when they needed it – but failed to remove the stimulus at the correct tipping point, but that stimulus needs to be removed. When it is, expect a market correction.”

EB on 5/06/2015 at 11:11AM

CLAIMS AGAINST BROKERS ON THE RISE A solicitor recently pointed out that consumer claims against brokers were on the rise, though the actual findings of wrongdoing had not risen. One commenter suggested that brokers merely had to follow proper procedures to protect themselves.

Steve McClure on 5/06/2015 at 10:34AM “Simply, be clear on your task – i.e. to procure a loan that is not unsuitable for the needs of your client – and be able to demonstrate it if tested. Sure, there are other procedural obligations, but let’s not complicate it with misassumptions about it always having to be the lowest rate on the earth.”

What do you think? Leave your comments at brokernews.com.au

PEOPLE 28

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Diary of a new broker: ‘We’re the masters of our own destiny’ New brokers Phil Barton and Natalie Duong reflect on their first 12 months in the industry

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s Aussie Warwick moves forward on the eve of our second year, my thoughts have turned to what our first 12 months have been like working as a husband and wife team.

Working so closely with someone who shares more than just a professional interest in the business has been challenging at times but also an absolute privilege to see how we have both grown together in experience.

As parents of a young family, the opportunity to discuss the business simply isn’t available after work, a factor which honestly maintains a little sanity during hectic weeks.

While husband and wife businesses face many of the same issues as other small enterprises, it’s important for spouses to have opportunities to debrief about the business with someone other than their business partner. Close family and friends are essential to have as outlets and sometimes as mediators to share concerns

A UNITED TEAM ENABLES LONGEVITY BOTH PERSONALLY AND PROFESSIONALLY, BUT IT DOES SOMETIMES COME AT A COST – P HIL BARTON

with and successes. We are fortunate to have both; without this it can certainly be lonely in a small business.

Importantly, I believe that couples who operate a business together unite, develop and share the same visions for the enterprise. A united team enables longevity both personally and professionally, but it does sometimes come at a cost and requires an understanding of the need for dedication of personal time to grow the business.

Family business owners often have a very long view of their business. Both Natalie and I have a vision of having our children one day take over and run the business in the future. Is this a possibility? Maybe. But what it does mean is that we are sharing that long-term goal together.

HONESTY WITH EACH OTHER

It is challenging for couples who run their own business to accept that there might be skills they don’t have between them, and therefore they need to look outside of their relationship to further improve on the business platform. Honest criticism comes more freely with a husband and wife business; sparing the other’s feelings if a job hasn’t been done well isn’t the biggest priority if there are improvements that can be made.

We both acknowledged that, although years of lending skills may be the essential tool that we bring to the business, it certainly doesn’t mean that you know how to file a BAS statement, navigate MYOB or be a terrific manager of people. However, as a family you’re in charge and you can shape the direction of the business. I am fortunate that Natalie has taken on the role of administrator of the business and has

managed elements that a CFO would take care of, in addition to the HR role.

Natalie and I work from our individual office spaces rather than our own shared communal areas, and the office is divided into separate workspaces. We have distinct office space, so there are times when we don’t really see each other during the day.

The necessary distance is good and allows us to manage our clients and diaries independently so that we retain our own professional identity. It is important that clients recognise each of us as professional mortgage consultants first and as a family business second. The latter offers us a chance to relate to the clients on a more personal level, which often breaks down more barriers than you would imagine. We do this by personalising our office space to ensure a less formal atmosphere, and conversation often turns to the topic of children and family.

Familiarity encourages open and frank conversations to ensure that each participant in the business is pulling their weight and working efficiently. The temptation is there to take a day of personal time to play golf or embark on retail therapy excursions while placing complete trust in the other.

That being said, running a business with your spouse can be all-consuming, and it is important to make the time for normal relationship things, like spending a day out together and with the children.

One of my goals in setting up the business was to have more time for us to be better parents to both of our boys. It is one of the key reasons we decided to go out on our own, not just to increase flexibility but to have the freedom of choice … and to be the masters of our own destiny.

OPINION 29

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Dealing with Australia’s sleeping giant: succession planning Succession planning is one of the key issues facing SMEs over the next decade, according to Bibby Financial Services managing director Mark Cleaver

T DID YOU KNOW?

80% Baby boomers own around 80% of Australian SMEs, valued at approx. $3.5trn Source:Bibby Financial Services

here’s a spanner in Australia’s business works and it will hit SMEs hard this decade as the babyboomer-owned SMEs plan their retirement: unlike Europe, most Australian SMEs are secured by property loans.

This reflects three things: the baby boomer’s psychology regarding property; the huge capital gains in Australia’s real estate market that have funded business growth over the past four decades; and Australian banks’ practice of using housing as collateral against business borrowings.

But that may all be about to change as the dynamics shift sharply when SME owners pass on the baton to the next generation.

The heart of the problem is this: baby boomers bought cheap property and enjoyed strong capital gains on residential and commercial properties. This meant they often chose to secure their business loans against property to fund growth.

Their successors will not have such opportunities.

Subsequent generations have entered the property market at inflated prices and usually already

carry large mortgages, so their capacity to gear up to purchase a business upon the owner’s retirement is limited. Secondly, this means that they will not enjoy the capital gains of their predecessors as a source of working capital, which will severely limit their capacity to run the business.

Many retiring baby boomers will simply sell their businesses to a third party, but many hope to hand over their businesses to a chosen successor – either a family member or a key member of management, and each of these options comes with a raft of problems.

These can be as simple as inheritance disputes among siblings, or the need to remove personal property that has to date been used as security for the business, or help a trusted non-family second in command find the funds for a management buyout.

Fortunately for many companies, there is a solution. Debtor finance can allow successors to raise the purchase price, or pay out siblings, all while removing personal risk from the business. Following are three scenarios and examples of how debtor finance can help.

SCENARIO 1 – REMOVING PERSONAL PROPERTY FROM THE BUSINESS

Often a business owner seeking to retire wishes to pass the business to a chosen successor, but the business is secured by the retiree’s personal property.

In this example, the successor’s father owned a furniture manufacturing business, of which the son was a manager, and it was valued at $1.2m. The father wanted his son to inherit, but he had $1m in bank borrowings – a charge over company assets and over the father’s two investment units worth $750,000 each.

The father was prepared to sell the business to the son for half its real value and was happy to allow the son to repay that purchase price over 10 years. However, he did not want to retain the charges over his investment units, because if the business failed under his son’s guidance the father’s retirement would have been in jeopardy.

The company needed $1m in working capital. It had $2m in receivables, and the son was able to raise $1.5–$1.6m against these debtors. The bank received a cheque of $1m and released the security over the father’s investments.

Knowing the investment units were safe, the father transferred the business to the son for $600,000, which the son could either pay off over 10 years or in one lump sum if he preferred.

SCENARIO 2 – INHERITANCE DISPUTES

Often more than one sibling will inherit a share of a business from their parents on retirement. In this situation, one sibling may have an active interest in the company and the other may have no interest in the business and will want to be bought out. If the other sibling can’t raise the funds for the buyout, then the company will be put up for sale to a third party to buy out the disinterested sibling.

Sometimes, a parent may demand that one sibling pay a disinterested sibling their half while still issuing that sibling with a 50% share in the company.

The children can raise funds against the business’s debtors to solve this dilemma.

SCENARIO 3 – THE MANAGEMENT BUYOUT BY A FAMILY MEMBER OR MANAGEMENT MEMBER

Often when an SME retires he may wish to pass the business to a family member or a key member of management. Unfortunately, that person may not have the money to pay for the business – money that the owner needs to fund his retirement.

This means the company may need to seek an external buyer. Rather than be forced to leave the company should the new owner bring in their own management, and start from scratch, family members or existing managers may be able to raise the funds against the debtors for a management buyout. This gives them the chance to buy a business they know inside and out, which has an established customer base and is in a sector they understand.

INSIDER 30

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Airbnb becomes a nightmare A California woman has fallen victim to the houseguests from hell

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hen 33-year-old Poonam Sandhu rented out a spare master bedroom in her Watsonville, California home, she expected to earn a little extra money – not spend it.

Sandhu found a holiday-making couple through Airbnb who paid for two weeks of accommodation.

When the online reservation ended, the couple asked if they could begin paying on a day-to-day basis in cash, claiming that they were waiting for a pay cheque, ABC News reported.

The homeowner agreed, feeling that she had no reason to distrust the couple since they had been diligent about payments in the past.

But then the couple began fighting loudly behind closed doors and using her belongings. They also started to provide rent only intermittently, then ceased payments altogether.

Finally, when the police came to intervene during one of their fights, she asked them to leave.

The couple refused.

“They started to sprawl

themselves all over the place,” Sandhu told ABC News.

Airbnb declined to help her, arguing that her insurance protection ended when she stopped using their platform and switched to cash.

The damages began to escalate, and at one point Sandhu had to stay at a friend`s house because a strange sewage problem caused the pipes to clog and required her water to be shut off for three to four days.

Due to California law, she couldn’t simply evict the “nightmare” renters.

“Once someone’s been inside your house for more than 30 days, they’re considered a tenant,” attorney Leo B Siegel told ABC News.

“They’re entitled to 30 days’ notice before you can even file the lawsuit.”

Finally, she offered them over $1,000 to leave. They accepted, but she still has a long way to go to clean up all their messes.

“This is my home,” Sandhu said. “It’s bad.”

WOMEN RACE AHEAD OF MEN IN DRIVING HABITS The findings are enough to make former Top Gear host Jeremy Clarkson blow a gasket, but a study by UK insurance company Privilege into the driving habits of both sexes has found that women are better drivers than men.

The report debunks the myth that women just use the mirrors to check their make-up – eight in 10 look before they make a move, compared with just over four in 10 men.

The 1,383 study participants were rated on habits such as aggressive tailgating, sticking to speed limits or cutting corners on turns, with the women nosing out in front with an overall score of 23.6 out of 30 and men on 19.8.

Women were found to be miles better at sticking to the speed limit, were less likely to cut dangerously across traffic, and were better at judging the right speed for the situation ahead.

The research found that women were also less likely to have a negative impact on other road users.

Men, on the other hand, were regular traffic light jumpers with more than half racing through on amber compared with just 14% of women, the Daily Mirror reported.

Tailgating was also a male trait, with more than a quarter of men being guilty compared with less than one in 10 women.

Men were also the worst offenders for driving and using a mobile phone, with a quarter guilty of texting or chatting without using a hands-free set compared to 16% of women.

Women were firmly in the driving seat when it came to negotiating the traffic, with just 1% cutting dangerously into traffic while 14% of men were happy to do so.

But men did fare better in some areas. They were seen to be more in control of the car and had the edge when checking blind spots by looking over their shoulders.

TV driving instructor Neil Beeson, star of Last Chance Driving School, said he was surprised by the results.

“In my experience, men have always been the best learners and usually performed better in lessons. However, it’s possible that women have retained the information better.”

Head of car insurance at Privilege, Charlotte Fielding, added: “The research has shown that there is a really big discrepancy between how men think they drive and how they actually drive.”