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ISSUE 8.01 January 2011
Fee-for-service a saviour, not ‘disaster’
‘Survive or die’
choice breeds fee-forservice success Practising fee-for-service mortgage brokers have come out in unanimous support of an
industry move towards fee-based broking, following dire warnings from Australian Finance Group (AFG) that such a move could be a ‘disaster’ for the industry and consumers. A collection of brokers currently charging fees of between $500 and $1,000 for their services all
argue they were given no choice but to charge a fee, after lender commission reductions. In fact, Darryl Benn of The Mortgage Planner Group in Sydney said a more widespread move towards fee-based broking is necessary for the “survival of the broker channel itself”. “Unless commission structures change, which is unlikely to occur in the short term, the industry will need to understand that ‘fee-for-service’ is the only way forward and inevitable,” Benn said. Aggregator AFG has claimed a widespread move to fee-for-service could create “a major obstacle” for consumers seeking broking services, pushing them towards major lenders with a “vested interest in selling from a limited product range”. The aggregator also predicted broker numbers would decline “dramatically”, causing a further reversal in competition as non-major lenders lose out on this much-needed third-party source of mortgage distribution. However, Benn and other fee-for-service brokers quashed the suggestions. “Brokers who offer ‘fee-for-service’ haven’t had a decline in their business, nor have their clients rejected this form of service and gone direct to the banks,” Benn said. “The opposite has occurred as their businesses are primarily built on referrals because they offer ‘fee for service’.” Page 16 cont.
Brokers beat banks Mortgage brokers outperform as lending languishes Page 2
ANZ comms cuts
Upfront remuneration reshuffle to hit bottom line Page 4
Fixing a fad
New year sees new peak in fixed loan writing Page 8
Inside this issue
SPECIAL REPORT 14 Industry reacts to banking reforms Analysis 18 Can mutuals make their mark? Opinion 21 Opportunity knocks for tomorrow’s brokers Viewpoint 22 Pundits predict the year ahead Market talk 26 Sluggish outlook for 2011 Caught on camera 29 Connective hosts annual conference Insider 30 Finding your inner wolf
News Brokers shine as lending toughens The responsiveness and dynamism of third party mortgage brokers helped the channel outperform amid a drop in mortgage lending growth in the final half of 2010. Research released by the MISC (Market Intelligence Strategy Centre) shows that, while brokers experienced an 11% contraction in loan volume growth in the 2010 September half-year, this beat an overall decrease in lending growth of over 19% across all channels.
The MISC attributed the outperformance of its broker research pool – which consists of 77% of the market – to “the more dynamic and responsive nature of the channel”, as well as a changed borrower psyche following a tightening in the overall lending environment. “With a growing perception that tighter lending conditions prevail, borrowers will naturally be encouraged to embrace
Comparative performance of the third party channel Direct and third party channels
September half-year growth
Average loan size
Refinance share half-year change
Source: Market Intelligence Strategy Centre (MISC Global)
channels they believe will afford them more assistance and more lender choice,” the MISC research said. The research found brokers were responsible for writing more new loans than the direct channel (76% compared with 64%), which the MISC argued was spurred on by lender encouragement of brokers to source new business, rather than refinance work. Third party brokers were also responsible for higher value loans than the average across all sales channels, with the average loan written by brokers measured at $276,715. The MISC noted that the data collection during the September half-year coincided with rate pressures as a result of rate adjustments, and that this was the second full reporting period after the removal of the federal government’s mortgage support.
Calls mount for transportable LMI Mortgage Choice broker Mark Bambagiotti has added his voice to the chorus of industry representatives calling for Lenders Mortgage Insurance policies to be made transferable. Late last year, the Federal Government announced measures that included a plan to study the potential of making these policies – which are taken out by lenders – transportable. Bambagiotti argued LMI does indeed amount to a barrier for borrowers looking to refinance. “Unfortunately it’s a barrier, because the borrower would have to pay mortgage insurance again if they were looking to switch lenders, so that’s another cost of refinancing that the borrower has to take into account when they’re evaluating their situation,” he said.
“Obviously something needs to be done, whether its lenders and mortgage insurers getting together and making it a more competitive landscape for the borrower, with maybe a bit of assistance there from the Government, so policies are transferable, or you at least get a credit for the initial LMI premium you paid as a borrower when you are moving to another lender.” Bambagiotti said mortgage insurers could also consider giving some credit for good behaviour to borrowers as part of revised policy, due to the nature of the risk-based policy. Following the Government’s announcement that it would consider legislative action on the issue, the Insurance Council of Australia expressed willingness to
work with government on proposals to make LMI portable when borrowers switch lenders. ICA spokesperson Sandra van Dijk said the industry would support the reform proposals, but is waiting on the details to be fleshed out. “We’re willing to work with government on any proposal to increase LMI portability. It’s really up to regulators and governments, but we’d be keen to get moving and work with them. It’s something the industry overall would support, but it’s not really up to us. We have to wait for regulators and government to rule on it,” she said. Asked if LMI transportability would be feasible from a logistical standpoint, Van Dijk said that this would vary from company to company.
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ANZ commission changes are cuts, say brokers
ANZ has announced plans to restructure its broker commissions from 1 February in a move which will see a greater emphasis placed on low-LVR, high-value loans. Under the changes, base commission to brokers will remain unchanged, as will sales volume bonuses up to 7.5 basis points. However, the loan size adjustment deduction of five basis points for loan values less than $100,000 will be removed. Loans with an LVR less than or equal to 75% and value between $350,000 and $500,000 will receive an additional five basis points, and loans with an LVR less than or equal to 75% between
$500,000 and $2m will receive an additional 10 basis points, with a total maximum up-front commission of 67.5 basis points, down from the previous 70. No loan size or LVR adjustment will be paid on loans of $2m or greater. The moves will see ANZ’s trail commissions remain unchanged at 15 basis points for the first three years, and 20 basis points from year four onwards. An ANZ spokesman said several of the bank’s major aggregators were consulted before the changes were announced. However, Oxygen Home Loans general manager James Green has told Australian Broker the news came as a surprise to him. “We’ve always enjoyed a close working relationship with ANZ. However, in this instance the decision to reduce our commissions was done prior to any consultation with us,” he said. Green has calculated that the changes will result in a significant
cut to broker commissions on loans written through ANZ. “The recent change in ANZ commission structure has a negative effect on forward earnings from ANZ, and we estimate this to be 10% net based on historical earning patterns,” he said. In spite of the changes, the ANZ spokesman stressed that the bank would remain committed to the broker channel.
“The broker market remains an important and integral part of ANZ’s business. We greatly value the relationships we have built with brokers over the years and look forward to continuing to work closely and ensure a sustainable industry,” he said. The spokesman said the changes were put in place to secure higher sustainable returns and minimise risk.
Changes to ANZ’s upfront commissions (effective 1 February 2011) Base upfront commission
Loans with LVR <=75% and loan size >=$350K and <$500K
Loans with LVR <=75% and loan size >=$500K and <$2M
Loans worth $2m or above
No loan size and LVR adjustment to be paid
Loans less than $100K
-5bps deduction removed
Total maximum upfront commission
Ramage departs as Citi goes direct Citibank will continue to rely heavily on the third party mortgage broking channel but will sell directly to customers more aggressively in 2011, its former director of mortgages has said. Before leaving the bank, Steven Ramage said the lender will pursue aggressive direct marketing of its home loans in 2011. “Historically we’ve run about 95% broker to 5% direct. This year  it’s been more like 85-15. Next year we’re targeting 70-30, with a long-term plan of 50-50 by the end of 2012.”
Ramage moved out of his role as head of mortgages in January following a refocus in business strategy. Before his departure he said the direct approach would increase the bank’s consumer presence in Australia. The aggressive direct marketing strategy will coincide with Citi’s plan to double its Australian branch network from 10 to 20 in 2011. “It’s a fact that Citibank in a consumer space wants to grow in Australia. If you sell a mortgage
directly, you also sell Citibank. There’s also that element that if we sell it, it’s like the consumer becomes a Citibank customer and it’s easier to sell multiple products,” he said. According to Ramage, Citi’s direct sales strategy will involve targeting its existing credit card customer base. He said that the bank will increase its direct home loan sales force by 300% in 2011. “That sounds huge, but it’s actually taking it from eight to 30,” Ramage said.
However, Ramage said this strategy does not mean a move away from brokers. “It’s a great channel. They do a great job,” he said.
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LoanKit licensing model a hit LoanKit’s ‘compliance-in-a-box’ licensing offering spurred member growth at the aggregator in the three months to December 2010, with the majority of the group’s brokers choosing to become LoanKit-managed licensees. In September last year, LoanKit unveiled a third licensing option in addition to traditional credit representative and ACL paths that would allow its brokers to hold their own ACL, while having LoanKit manage their compliance. These LoanKitmanaged licensees are also able to use lenders outside the panel. Speaking with Australian Broker, LoanKit head Kym Rampal said that only 20% of its brokers would become credit representatives – far lower than the industry average. Of the remaining portion of LoanKit brokers, nearly 90% have opted to take LoanKit up on its
Loankit-managed licensee option, allowing them their own ACL as well as compliance for $330 per annum. “It’s a fabulous result after offering that to brokers, and has proven to us that there was a niche in the market that needed to be filled,” Rampal said. He added that the offer has also managed to accelerate recruitment, with 60% of new recruits having given the aggregator’s compliance model as their reason for joining. LoanKit currently has 148 brokers under its umbrella, but taking into account brokers who are still due to join, the group is expecting to have 200 by March 2011. At the end of July 2010 the aggregator had 120 brokers. At the time the third option was released, Rampal said he was issuing a “good-natured” challenge to other wholesale aggregators to better the compliance offering.
Different ideas greet new branded brokers The competition that upcoming branded brokerages can add to the market is “not that significant” according to industry pundits, despite claims from new BEAT Home Loans CEO Brendan O’Donnell that they will form the new vanguard of third party growth. O’Donnell, who joined BEAT in late December as CEO following five years at Choice Aggregation Services, said branded brokerages could right the almost “oligopoly scenario” of current major bank dominance, and that they will form the next wave of growth. “Everyone is talking about the fact that broker market share can grow north of 50% to 60%, and the reality is that yes it can: I am
a big believer in that,” O’Donnell told Australian Broker. “But the only way it can go there is by creating alternatives in the market and more competition, so for me, I really do see BEAT playing a role in growing market share for brokers,” he said. However, Steve Kane, managing director of FAST, said branded businesses have been around for ages. “You’ve got classic examples in terms of Aussie and Mortgage Choice – they’ve been branded businesses for a long time,” he said. “So I don’t know that necessarily enhances competition or changes the market because a new brand appears.” Kane said it will be service and product offering, as well as the
overall customer experience, which will determine whether or not individual brands are successful. “I don’t think it comes down to a brand strategy; it’s more about what they deliver in terms of the customer experience, the product offering and the service,” he said. Connective principal Mark Haron said the competition new branded brokerages can bring is “not that significant”. “In terms of it adding more competition to the market, perhaps yes driven through their products – if the banks and other lenders desire to get more business from those particular branded brokers they are going to have to work harder because they have actually got to get them to
not use their own product, not their branded product – but it’s not that significant.” However, Haron said that, overall, brands do enhance the reputation of the broking channel as a whole. “I think that branding certainly gets the broker space noticed, and makes things look a lot more professional, with the branding that happens from the Aussies and the Mortgage Choices and others,” he said. O’Donnell said in December that, as it’s hard to get brokers to diversify into the alternatives outside the four majors because of their strong propositions, “by building your own national branded brokerage you can actually achieve a lot more, I think”.
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Fixed rate fixation as rates rise Fixed rate home loans rose to a 31-month peak in popularity in December 2010. According to data from Mortgage Choice, fixed rate loans rose to 15.2% of all the company’s approvals during December. The demand for the loans has lifted from its low of 0.88% in January of 2010. Mortgage Choice spokesman Kristy Sheppard said the sharp increase, up from 7.7% in October and 11.24% in November, was indicative of “rising borrower caution and conservatism in the face of higher interest rates and living costs”. “The elevated pricing of most fixed rates compared to variable rates has not deterred one in nine new Australian borrowers from fixing the rate on part or all of their home loan,” she said. Australian First Mortgage director David White noticed the increase in the months leading up to the latest rate rise, but believes the Reserve Bank’s comments that it will leave rates on hold for some time has drawn most clients back to variable rates. “We received a large increase in fixed rate application and enquiry in the two months leading up to the latest RBA rate change as we had a special fixed rate offer in the market. Since the rate change, we have noticed most applications [are] now for variable
rates as the RBA has made positive comments about the likelihood of rates remaining stable until mid-next year,” he said. 1st Street Home Loans director Jeremy Fisher said he directs clients toward fixing part of their home loan. “I am a believer in minimising risk and exposure by looking to fix part of the loan in uncertain times. Not all clients will fix, though, and this depends on their risk tolerance and whether they are risk-averse.” He said many clients have benefited from this over the past two years, locking in rates as low as 4.99%. However, White has warned that borrowers still need to be wary of fixing their home loans, despite risk aversion. “I would think customers need to be very careful fixing their rates unless it is a special offer. They need to be aware of any fixing costs to lock the rate, and take this fee into account if switching,” he said. Mortgage Choice’s customer data also showed that in spite of the growing popularity of fixed rates, standard variable rate loans remain the most popular – accounting for 32.9% of loan approvals. The standard variable rate is followed by basic variable at 25.1% and ongoing discount loans at 21.2%.
Fixed rates on the rise (percentage of home loans written) September
Source: Mortgage Choice
Brokers should focus on refinance, property investors in 2011: Club A new survey commissioned by Club Financial Services has found 73% of homeowners are not considering a move any time soon. The result echoes findings by RP Data that the average length of home ownership has increased over the past five years. Club Financial general manager Andrew Clouston said that the results should motivate brokers to rethink their strategy in 2011. “These results highlight a need for mortgage brokers to focus on refinance and investment property clients as we head into the new year. Brokers will need to be proactive with their client base,” Clouston said. Clouston believes in spite of most homeowners lacking the desire to move, proactive brokers can still see significant business through refinancing. “Mortgage brokers will need to be proactive in reviewing their clients’ finances, rather than waiting for refinancing enquiries to come to them,” he told Australian Broker. “The secret is not about the interest rate increases. It’s all about cash flow for borrowers: the improvement in cash flow we can create from a restructure of their loans and other debts, not how much their payment went up on the interest rate increase. If brokers can demonstrate a significant cash flow improvement for clients right now, and/or demonstrate significant equity available for investing, then that’s a great selling point.” Nearly 80% of respondents who indicated they were not planning a move listed their reason as a simple lack of desire. However, Clouston does not believe that homeowners
staying put indicates a stagnation in the property market. “The survey also revealed a trend towards owning several properties, with over 40% of respondents indicating purchasing an investment property is on their radar,” he said. Clouston said brokers should use this information. “A good finance consultant will review their clients’ position regularly to ensure they still have the most suitable home loan for their particular set of circumstances, and to determine whether they may have built up enough equity to consider funding a new investment.” Along with seeking out refinance and investment property clients, Clouston said brokers should continue to find new ways to diversify their income. “These results reinforce the need for brokers to continue to grow their businesses by concentrating on core business, while at the same time expanding their product ranges through the development of new and effective income streams,” he said.
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Blue Wealth fires back at Mortgage Choice
Blue Wealth Property has fired back at claims by Mortgage Choice CEO Michael Russell that brokers referring clients to property investment specialists could find themselves in legal difficulties. Late last year, Russell said that brokers advising on both sides of the balance sheet could find themselves in a conflict of interest. However, Blue Wealth Property CEO Tony Hayek has rejected the
claims, saying Russell’s comments had an ulterior motive. “I take a little bit of offence to commentators who use fear to run their agenda. Mortgage Choice is a fantastic company, but they’re clearly a mortgage company. They make money when their brokers and franchisees focus on selling loans. When they focus on property, insurance or financial planning, they’re taking their eye off what Mortgage Choice considers their core. To be scaring people with litigation is just crazy,” Hayek told Australian Broker. Contrary to Russell’s assertion that brokers referring clients to property investment advisors could cause legal problems, Hayek said situations such as this rarely occur. “We’ve been in the business of research and advice in property investment for a long time and haven’t had one person encounter any legal troubles,” Hayek said. “I’ve only heard of one case in which a broker stumbled into legal problems for falsifying finance
documents. However, those who follow the normal process will not have any problems. It carries no more risk than conducting any other type of business.” Hayek dismissed Russell’s claims that clients who have bad property experiences could attach referring brokers to statements of claim in court. “The reality is, you can be sued by a waitress at a restaurant and have to defend yourself if she makes any kind of allegation against you.” He also refuted claims that professional indemnity insurers will not insure property referrals given by mortgage brokers. “If a broker sets up a separate company for property they can very easily obtain insurance,” he said. He told Australian Broker that Mortgage Choice itself has benefited from its franchisees conducting business with Blue Wealth. “We have Mortgage Choice clients who have referred clients to us and have been very happy.” Discouraging brokers from diversifying into property will only
make things more difficult for many individuals who have found it harder and harder to gain income from mortgage broking alone, he said. “Brokers are hurting. Banks have cut and slashed things and credit is tighter. Brokers have to diversify or they won’t be around. “Mortgage Choice should be facilitating the move for brokers to diversify their income,” he said. “If they did that they could have better control over the deals their brokers did.” Russell has previously said he was in favour of brokers diversifying their income through health, life and home insurance. He told Australian Broker he disagreed with Hayek’s statements, and believed they were contrary to prevailing sentiment in the insurance industry. “To suggest there is no attachment risk is clearly at odds with the major professional indemnity insurers in this country,” he said.
Oasis launches loan scenario system Oasis Mortgage Group has unveiled a new non-bank, nonconforming loan scenario system that will match broker enquiries online with specialist lending products, in a boon expected to save brokers time on challenging deals. In what Oasis are calling an industry first, the system will allow brokers to compare non-bank and non-conforming home, business and commercial loans based on client needs using its proprietary OPM data-matching software. Launched in December, it currently hosts details from 500 products, with an expectation this will increase to over 1000 by the end of this year, from a total of 150 specialist funders.
Simon Reibelt from brokerage Oasis Mortgage Group, which specialises in non-conforming loans, said the new website gives brokers access to the largest range of non-bank and non-conforming solutions available anywhere in Australia. Using the system, brokers can input their client’s requirements – including a range of specialist needs – which will generate product matches and details if available, minus specific lender and commission details. If the client agrees to the specifications supplied, brokers can proceed with a formal enquiry, on which Oasis takes a commission split. Robert Campbell of Armidale
House in Melbourne told Australian Broker “there’s nothing like this in the market”, and said that after using the system twice he found the biggest benefit was time saved on non-conforming deals. “I think the problem with non-conforming deals is that there is so much investigation you have to do into the subtleties of each deal,” he said. “This interface gives you a quick indication of whether the deal is doable or not,” he said. Campbell said that he often spends between two and four hours investigating a potential non-conforming deal, while the new site offers results in as short a time as 60 seconds.
Reibelt said the site – www. brokerscenarios.com.au – also ensured NCCP obligations are met through a focus on establishing client needs and circumstances, and negated conflict of interest concerns by not supplying commission details. He added that no other system provides such an honest and instant result without the need for the user to leave contact details. “OPM empowers all users to make non-intrusive confidential and considered enquiries before proceeding with a more formal enquiry,” he said. The website will also be launched to consumers at www.searchandcompare.com.au.
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Brokers saved from ‘compliance nightmare’
Mortgage brokers have been rescued from a potentially “horrendous” compliance impost, following intense lobbying from the MFAA and industry representatives on consumer disclosure regulations. Long-awaited Federal Treasury regulations on disclosures – which include credit guides, quotes and proposal documents – are due to be announced in January, following an earlier revision of the deadline for compliance from 1 January to 1 April this year. According to MFAA CEO Phil Naylor, the final form of the regulations will be much more
palatable for mortgage brokers and the rest of the lending industry than the initial draft, which shocked brokers by ignoring previous industry guidance. “The initial draft supplied to us for comment was, quite frankly, horrendous and it would have made life a compliance nightmare for brokers,” Naylor told Australian Broker. Stipulations in the draft regulations included requiring brokers to disclose upfront in dollar terms the amount of trail they could expect to earn over the life of the loan. However, Naylor said the MFAA immediately expressed concerns to Treasury about the “inappropriateness” of the draft regulations and “single-handedly led the charge” to bring about more broker-friendly regulations. “To their credit, Treasury has been very responsive to our concerns and we are now confident that the finalised regulations will result in much more brokerfriendly compliance requirements
while still providing appropriate disclosure and protection to consumers,” Naylor said. Exemptions to the deadline – which effectively extended it – were announced in December to allow the industry more time to implement the final regulations. Naylor said the MFAA had strongly urged the Treasury to postpone the operation date of the
Treasury delivers on deadline delay In response to industry concerns about the short time provided to be ready for commencement on 1 January 2011, an update to regulations in December contained an exemption until 1 April from the requirement to provide credit guides, quotes and credit proposal documents. To qualify for the exemption licensees must provide the borrower with details of their external dispute resolution (EDR) scheme. If the broker charges for the service provided, there must be a written agreement in place specifying the amount and when the borrower must pay. As a result, brokers who are using the MFAA finance broking contract (or a similar document) will comply as it discloses EDR details. However, if the broker is a credit representative, the FBC must show the EDR details for both the licensee and the credit representative. Source: Gadens Lawyers
Loan Market sees jump in downsizing demand Rising interest rates are leading to more borrowers seeking to downsize their mortgage, according to Loan Market data. The broker’s chief operating officer Dean Rushton said the company has seen a significant increase in enquiries about property downsizing since the latest round of rate hikes. “Our call centre rarely receives downsizing enquiries in any given week of the year, so the influx of
this type of enquiry indicates mortgage holders are really feeling the impact of November’s Reserve Bank rate rise,” Rushton said. Though the RBA is tipped to leave cash rates on hold until the second quarter of 2011, Rushton believes mortgage holders are still concerned rates will continue to rise this year. “There have been predictions that the RBA could raise the cash rate from its present level of 4.75%
new regulations as brokers “would simply not have had time to alter their systems” to comply by the originally proposed date of 1 January 2011. “If we are successful in our lobbying on this point brokers across Australia can be thankful for MFAA’s efforts on this very important issue for the industry and for the NCCP,” Naylor said.
to as much as 6% by the end of 2011, and that has unnerved many mortgage holders,” he said. Rushton suggested downsizing may be a wise option for borrowers feeling the stress of increased payments. “By selling up and buying a smaller and less expensive property, people can then reduce their mortgages and create a comfort zone,” he said. Lisa Sanders, director of Professional Loan Management
and MPA Top 10 Broker, told Australian Broker that while her company rarely deals with downsizing enquiries, she believes they often come from clients being placed in the wrong loan to begin with. “I think a lot of people end up with inappropriate and inflexible home loans through mortgage brokers who are merely salespeople, and they get trapped in loan products that do not serve them. It is the typical fair weather broker scenario,” she said.
Utility worries outweigh interest rate concerns Despite the recent concerns over consumer interest rate woes following hikes late last year, Mortgage Choice’s 2010 Consumer Sentiment Survey indicated the rising costs of necessities such as utilities and clothing trumped rate worries going into 2011. Polling respondents about a range of property and financerelated matters, the survey also found 35% of respondents intended to purchase property within the two years to November 2012, with 36% planning an investment property, 33% their next home and 31% their first home. Potential investors showed the most concern over rates, with 27% ranking it as their biggest concern, compared with 19% of next homebuyers and 8% of first homebuyers. Mortgage Choice senior corporate affairs manager Kristy Sheppard said the survey’s findings that concern over utility bills and other costs of living outweighed concern over interest rates may have been due to it being
completed before the November 2010 rate rise. She said this could “illustrate how much of a surprise that and subsequent lender rises were to Australians”. “The moves would have been a great disappointment to the 9% of mortgage holders surveyed who said that, based on an interest rate of 7%, they could not afford any rate rises before considering selling up,” Sheppard said. “It is disheartening to find that, although almost everyone surveyed was aware to a certain extent of the interest rate environment expected over the next year or so, a significant proportion of mortgage holders may need to put their property on the market should that become reality,” she said. “The majority of economists and commentators predict cash rate rises of at least 0.5 percentage points during 2011. That would be enough for around 18% of Australian mortgage holders to consider selling up.” The survey also found that 61%
of respondents would consider using a mortgage broker in the future. The number one reason those surveyed gave for using a mortgage broker was that it saved them from having to research a range of lenders and loans themselves. Sixty-four per cent of respondents said that they knew the services provided by mortgage brokers, while 24% said they did not and 12% were unsure. The survey also suggested that national licensing will put consumers more at ease with mortgage brokers, with 59% saying national regulation would make them more likely to use one. The groups with the highest likelihood of understanding the role of mortgage brokers were males (66% vs 63% of females), Generation X (72%) and Western Australians (69%). “The survey results make it clear that national regulation will have a powerful influence on mortgage broker usage,” Sheppard said. “It’s been a long time coming. Today,
Top personal finance priorities in 2011 for mortgage holders 1.
Review my budget (69%)
Review my mortgage/s (61%)
Cut back on spending (53%)
Pay off my credit cards (43%)
Refinance my mortgage/s (31%)
around 40% of all new Australian home loans are sourced by brokers. Hopefully this will rise to 50% and beyond in the near future, as the industry better promotes itself and consumer perceptions of a mortgage broker’s role and value proposition improve.”
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SPECIAL REPORT – BANKING REFORMS
RMBS injection ‘chicken feed’: Symond
Aussie Home Loans founder John Symond told a Senate banking inquiry the non-bank lender may have to raise its interest rates as a result of the government’s banking reform package. Speaking to the economics committee, Symond said the Australian Office of Financial Management had gone back on a deal to buy 47% of hundreds of millions of dollars worth of Aussie Home Loans mortgage-backed bonds, and had done so under orders from Treasurer Wayne Swan. As a result, Symond told the committee, new Aussie Home Loans customers could see a 0.1% interest rate increase. Symond also called “chicken feed” the government’s pledge to inject $4bn in the RMBS market. “If the government wants to make a difference, and promote competition, it would have to invest something like at least $30 or $40bn a year,” Symond said. According to Symond, the government did not engage in any consultation with non-bank lenders before announcing the reforms, and none of the proposed funding would benefit the sector. “It’s the non-banks which have been shut out of the funding environment. There’s nothing in these initiatives that help those that brought competition into the marketplace,” he said.
wan takes a swipe S at Symond Treasurer Wayne Swan fired back at Aussie Home Loans founder John Symond after his criticisms of the government’s banking reform package. Swan told an Adelaide radio station late last year that: “John Symond is substantially owned by the Commonwealth Bank, John Symond has a very close relationship with one of the big banks, so John Symond has a self-interest, if you like, in criticising the package.” Swan went on to claim Symond’s views regarding the negative impact of the reforms on smaller lenders were not necessarily reflective of the industry. “His views are not necessarily shared by the smaller lenders, certainly not shared by the credit unions, the building societies and some of the regional banks.” The comments followed substantial criticism of the overall package.
MFAA brands reforms a failure The MFAA claims that slated Federal Government banking reforms announced last year will result in less consumer choice in the Australian mortgage market, not more. MFAA CEO Phil Naylor said that while “on the surface” the package appears to deal with competition issues, it does not address the root cause of lack of competition – a reliable source of funding for non-bank lenders. In fact, Naylor said non-banks will be “distinctly disadvantaged” by a ban on exit fees for new mortgages from 1 July 2011. “It’s important to note that non-bank lenders have been able to offer consumers very competitive interest rates by using deferred established fees, which are paid only if there is an early termination of the loan,” he said. Naylor added that non-bank lenders were the most heavily affected by the GFC and are still recovering, and that “it is futile to establish mechanisms to enable switching if there is no viable and competitive alternative”. “The reality is that exit fees may in fact be replaced by establishment fees, making it harder for consumers to get a home loan,” he said. However, Mortgage House managing director Ken Sayer disagreed with Naylor, saying removal of exit fees in isolation will not adversely affect non-bank competitiveness. He said overall the announcement stopped short on crucial issues, and will only have a short-term impact, rather than providing Australians with a sustainable model. In his appearance before a Senate inquiry into banking competition, Naylor went on to urge further securitisation to bolster competition in the local industry. Naylor referred to the drop in market share of non-bank lenders from around 13% pre-GFC to the present 3%, while banks have grabbed 90% of all lending. “The reason market share of the non-bank lenders has diminished is the collapse of the securitisation market,” he said. While praising the government’s proposed $4bn RMBS injection, Naylor said it does not go far enough to enable smaller lenders access to funding. “To its credit, the Federal
DEF ban could squeeze upfronts Non-bank lenders claim that a ban on deferred establishment fees (DEFs) as a result of the Federal Government’s reform package could mean less upfront commission for brokers, as well as higher interest rates for consumers. Carrington National CEO Gino Marra said DEF payments go to the cost of providing a loan, and that the banning of exit fees from 1 July could mean these costs are recouped through less upfront commission, or higher interest rates. When a ban on DEFs was first proposed, Firstmac’s chief financial officer James Austin told Australian Broker a ban on these fees could mean the end of upfront commissions, and an industry transition towards a trailonly model of commission payments.
A leaf out of Canada’s book
Fresh from a trip to Canada, where he attended the Canadian Association of Accredited Mortgage Professionals (CAAMP) conference, the MFAA’s Phil Naylor said Australia had missed a “golden opportunity” to develop an Australian version of the Canadian Mortgage Bonds system, which enables a thriving and competitive non-bank lender sector to operate there. Responding to announced government banking reforms, Naylor said a proposed $4bn investment in securitisation pales in comparison with that made by the Canadian Mortgage and Housing Corporation, which has invested $300bn in the National Housing Act Mortgage-backed Securities and Canadian Mortgage Bonds programs over the last three years. “The MFAA accepts that it is not as simple as just importing an overseas model into Australia, but there are many similarities between the Australian and Canadian economies and banking systems that would suggest the model could easily work,” Naylor suggested. Government has injected $16 billion of funds and promises another $4 billion in the Banking Reform package. While this injection has been welcomed it has not been sufficient to revive the securitisation market.” Naylor said it is non-banks, rather than mutuals or second-tiers, that will bring about more robust competition in the sector, but only if reforms enable them to be viable competitors. For Ken Sayer’s full take on banking reform, see Opinion on page 20.
Austin said that for non-banks the DEF provides an opportunity to recoup upfront commission payments and LMI costs, and that by denying lenders the opportunity to recoup these costs from customers who churn regularly – particularly those that refinance within three years of taking out a mortgage – lenders would not be able to justify paying upfront commissions. Marra has previously said if DEFs were banned, “the biggest loser would be the broker”, due to this impact on upfront commissions. However, Austin did suggest that brokers would still receive the same income, but spread further across the life of the loan. Responding to announced measures on mortgage funding, Marra said that non-banks do not have the ability to raise funds against deposits in the same way as banks, and that real competition will come when the government looks at this funding issue and at deposits.
SPECIAL REPORT – BANKING REFORMS
Exit fee easing could hurt brokers, borrowers
Government easing of mortgage exit fees could actually hurt borrowers and brokers, according to National Mortgage Brokers managing director Gerald Foley. The comments come after a Newspoll commissioned by Perception Partners indicated more than 900,000 borrowers, or 18% of respondents, said they were likely to change lenders in the next six months. Nearly 40% said they would change if there were no exit fees. Foley said government measures to make switching lenders easier, set to come in from July 1 could have unforeseen consequences for both mortgage brokers and mortgage holders. Foley said broker volumes would increase as exit fees ease, but client loyalty may suffer. “Any changes which make switching loans easier or less costly will provide a boost to borrowers’ likelihood of changing lenders.
That should generate lending activity for brokers, given we currently hold 40% market share. The bigger issue then for brokers becomes, how long will my clients stay on my books if they can ‘lender hop’ easily?” he said. This ‘lender hopping,’ Foley believes, will hurt brokers in the long-run. “I foresee a shortening in loan terms and an increase in clawback for brokers as a result,” he said. MPA Top 10 Broker Justin Doobov of Integrity Finance agrees. “If the lenders remove all exit fees but still have a clawback on broker commissions, it puts all the risk back onto the broker. If the lender offers bad service or becomes uncompetitive then the client will want to move, and all the hard work that the broker did to acquire the client could be lost,” he said. Along with increasing commission clawbacks, easy access to refinancing can also put borrowers in more debt trouble, Foley said. “I’m uncertain if enabling borrowers to switch easily is great for those who may then look to tap into any property value increases easily, each time re-commencing their loan “I foresee a shortening in loan terms and an increase in clawback for brokers as a result” – Gerald Foley term for, say, another 30 years. As a result, the level and term of debt borrowers hold will continue to rise.” According to Foley, allowing borrowers to more readily switch lenders does not address the root issue of mortgage stress felt by many homeowners.
Russell laments exit fee blunder Mortgage Choice CEO Michael Russell said a proposed ban on exit fees could see major banks waiting until non-banks “suffocate”, which would serve only to hurt Australian mortgage holders rather than reviving competition in the market. In a letter to Treasurer Wayne Swan reacting to proposed banking reforms, Russell said he felt strongly about the needs of non-bank lenders and second tier banks, and that anything that dilutes their ability to compete will impact on home loan choice. “Non-bank lenders, so vital to the health of a competitive market, are forced to raise funds at a higher cost to their banking counterparts, and must impose an exit fee to recover their reasonable costs should a loan be discharged early,” Russell wrote. He questioned the recently announced reform package from Wayne Swan which goes against previous industry consultation undertaken by ASIC, which outlined in RG220 what would be regarded as a reasonable exit fee, and what would be unconscionable. “The anticipated decline in competition will hit mortgage holders hard where it counts most – interest rates and fees and, most importantly, future product innovation and customer service,” he said.
Russell wrote that it is “widely accepted” that if banks are forced to forego charging exit fees, they “would simply look to recoup these fees elsewhere from their customers or wait until the non-banks suffocated”. He added that an unintended consequence will be that existing mortgage holders will defer refinancing until 1 July to take advantage of the ban – only to face increased interest rates, which are likely to rise in the first half of this year. ASIC’s RG220 was previously hailed as a “well-thought out statement of the law” by Gadens Lawyers’ senior banking and finance partner Jon Denovan, who said it “recognised the role that brokers, mortgage managers and aggregators play in borrowers obtaining a loan, and allowed those costs to be taken into account in determining whether an exit fee is fair”. Likewise, MFAA CEO Phil Naylor welcomed RG220 due to the fact that third party costs were included in the costs the regulator would accept as relevant to constitute the DEF if a loan contract is broken. Touching on other aspects of the government’s proposals, Russell also lambasted the planned $4bn RMBS injection as a “drop in the ocean”, and argued credit unions and building societies would not form a “Fifth Pillar” due to their funding constraints.
Reactions to Swan’s proposed banking reforms “When you look at what’s been delivered, you can really see that the PR machines of the Big Four banks have been working to lobby Canberra to get the Lisa Montgomery, outcomes that they’ve Resi been looking for, and if you drill down into the detail of these initiatives, you are going to find that the Big Four banks win in many ways.” “The real drama with building societies and credit unions is that they look competitive from the outside, but when you look closely they are not that Leanne Scott, competitive. They have Mortgage Choice exit fees, they charge larger upfronts and they charge legal fees and application fees. By the time you roll it all in, their interest rate is no different.” “Once the analysts had digested the proposed reforms and worked out what it meant, they saw the major banks being a big winner out of it. That was clearly Mark Haron, demonstrated by the Connective market’s reaction on Monday [following the announcement of the reform package], when they literally added over $3bn worth of value to the shares of the major banks.” “The government has really ignored the sector of the market – the nonbank lenders – that have driven prices down. In the 90s, before the non-bank Steve Sampson, lenders were around, Provident Capital the spread between the cash rate and the interest rate on home loans was 4%. Coming up to the GFC, that was down to 2%. Following the GFC, with a lack of competition, it’s now over 3%” “This measure [on credit unions] will benefit consumers and increase the level of competition in the market – the company fully supports the Treasury’s proposal Mark Bouris, in this area. It has been Yellow Brick Road stated that mutuals and credit unions are ‘not up to the job’ and are just ‘corner stores’. I want to make it abundantly clear that corner stores do work when there are enough of them.” For our exclusive video report, see http://www. brokernews.com.au/tv/
News Banks not alone in out-of-cycle moves An interest rate update from Canstar Cannex shows major banks have not been the sole culprits in out-of-cycle rate moves. Out of 99 lenders surveyed by the research firm, 89 have moved on interest rates. The survey has indicated that, in addition to the oft-maligned major banks, building societies, credit unions
and mortgage originators have all increased rates in excess of the official cash rate. The lenders who moved on rates increased an average of 0.32%, meaning borrowers will now pay 1.34% more than at this time last year. “The high profile hikes of 0.45% we saw in 2009 from Westpac and in 2010 from the
CBA product still ahead Despite its variable rate rise in November, Commonwealth Bank’s Rate Saver Home Loan 3-Year Special remained the most popular product, according to data from Stargate’s Lender Popularity Index. “It’s still an easy product to sell,” CEO Brett Spencer said. “Volumes were down, though, and the gap between them and second place was narrower.” The biggest drop among the majors was ANZ, which fell about 25% in popularity in November, while second-tier banks gained ground from the majors.
cont. from cover
Phil Webb of Smart Choice Mortgage Brokers in Coffs Harbour, NSW – who aggregates with AFG – said clawbacks drove him to introduce a fee back in 2006. Charging $700 plus GST, Webb said clients will accept a fee if the rationale and value is clearly explained. Property Secrets’ Paul Giezekamp, based in Sydney’s Leichhardt, said that he introduced a $495 fee prior to the GFC to protect the finance division of his business. While he said most brokers thought he was “crazy” at the time, he was able to ramp up his business by 30%. He has improved his settlement ratio by 50%, courtesy of making the fee upfront and nonrefundable. “With that increase in volume, we are very confident that being specialists in mortgage planning, more so than mortgage brokering, people will pay for it,” he said. Likewise, Kiran Saldanha of The Finance Professionals in Prospect, NSW, began charging a fee in early 2010. Saldanha said the vast majority of clients will pay his lifetime fee – which includes a three-month service guarantee – and that he has earned more from his business in one year since introducing a fee than in the two years prior by relying only on commission. Benn disputes the claim that non-major lenders would lose out from fee-for-service. “I believe the opposite will occur as brokers would once again focus on the
non-majors as they did before the GFC, and this will create great competition between the majors and non-majors,” he said. Giezekamp agrees, saying a wider move to fee-for-service would create a “perfect opportunity” for non-banks to compete on price and product with the majors. Fee-for-service brokers argue that other practitioners should make the transition to charging a fee. “You have to make a stand sooner or later,” Giezekamp said. “Any broker that doesn’t do this or head towards this, regardless of whether the industry goes that way or not, is digging their own grave.” Saldanha said compliance costs under NCCP legislation only made the situation more imperative. “I honestly think that those who don’t go down this path, especially in the regime of the Australian Credit Licence, are not going to survive,” he said. Darryl Benn said the only reason a move away from brokers will occur is if brokers fail to deliver a different and superior standard of service to their clients. “They need to be seen as providing a very different service than what is available if they go direct to a lender,” he said. “Consumers do pay for advice when they go to an accountant, solicitor or financial planner and they will pay a mortgage broker once they appreciate the different service that is delivered by a mortgage broker,” Benn said.
Commonwealth Bank certainly signalled a cutting of the umbilical cord from the Reserve Bank and bumped up the average overall figures from the banking sector,” Canstar Cannex financial analyst Mitchell Watson said. The research firm said in December that the results imply borrowers are at risk of rate variances regardless of the lender they choose. “In the last 12 months, only five lenders out of 99 increased their rates in accordance with the Reserve Bank,” Watson said. Watson suggested that borrowers have to be vigilant to protect themselves from out-ofcycle rate rises. “There are some loans which advertise that they track the average rate and price their loan accordingly, but one product that
stands out here is the Queensland Teachers Credit Union Rate Tracker home loan which guarantees to move up or down with the Reserve Bank’s cash rate for the life of the loan,” he said. However, out-of-cycle rises have been necessitated by increased funding costs, Citibank’s former director of mortgages Steven Ramage said. “We don’t like raising rates above the market expectation,” he said. “We see funding running at higher rates for a long time. The intention for the future will be to avoid raising rates above the RBA when possible. However, we must continue to deliver sufficient returns on capital, and if the overall cost of funds increases, then we will need to manage things accordingly.”
CBA bears brunt of consumer anger Customer satisfaction results published late last year show mortgage-holder satisfaction with the Commonwealth Bank has dropped to its lowest level in five years. The Roy Morgan Australian Banks Customer Satisfaction Report for November showed satisfaction among CBA home loan customers fell to 74.4%, down from 75.3% in October. The survey is the first to show the effect of November interest rate hikes on customer satisfaction. Commonwealth Bank, which moved first in raising its interest rates following the RBA official cash rate hike, has borne the brunt of consumer anger, with the other major banks remaining steady in satisfaction ratings. The fall in customer satisfaction for CBA was predicted by Roy Morgan communications director Norman Morris. Speaking to
Australian Broker following the research company’s October survey, Morris said: “It will be interesting to watch how the CBA home loan customers in particular rate their bank on satisfaction, as they were the first to move well above the market increase and as a result incurred widespread negative publicity.” Of the big banks, ANZ fared the best with a 76.8% satisfaction rating. NAB was the big mover among the Big Four, rising 4.1% to 72.7% for November. Overall, the banks scored an average of 74.6% customer satisfaction, down from 75% in October. Smaller banks and mutuals topped the rankings for satisfaction among home loan customers. Bendigo Bank led the second tiers with 91.7% customer satisfaction. Credit unions recorded 90.6% satisfaction, while building societies ranked 85.9%.
Average interest rate movement since December 2009 Banks
Mutuals and brokers: an uneasy alliance? Mutuals are being touted as the next wave of competition. Adam Smith asks if they are up to the task, and what it will mean for brokers
urrounding the recent political back-andforth over banking reform has been the issue of building societies and credit unions. The institutions are said to have been the beneficiaries of growing consumer disgust with major banks, and some Big Four borrowers are reported to have abandoned ship in favour of the smaller lenders. John Minz, chief executive of Heritage Building Society has seen this growth first-hand. “Our lending for September, October and November of this year is up 30% compared with the same period last year,” he said. Minz said that he expects to see this trend continue and even increase throughout the year, and Australian Bureau of Statistics figures seem to bear out his predictions. ABS data released in December showed that mutuals grew their market share 1% to 10.2% in November. In light of recent government measures to promote mutuals as an alternative to large banks, this growth in market share seems likely to continue. If credit unions and building societies are set to make big lending gains, what will be the outcome for brokers? During the GFC, many of the institutions closed their products to brokers due to funding and securitisation issues. Could increased access to funding and securitisation mean a revival of these products being made available to brokers? Credit Union Australia general manager of strategy and marketing Andrew Hadley believes it will.
On the up and up: home loan growth for mutuals Year end September 2009 Year end September 2010
“It would be a positive thing if CUA could consider a move back into the broker channel,” he said. “We had a very successful model pre-GFC. If and when we saw a return to the right economic conditions, we would definitely entertain a move back to the broker channel.” According to Hadley, 30–35% of CUA’s home loan volumes once originated through brokers, but the GFC forced the credit union to close these channels. “This has been a fairly significant change to our business model. Our broker partners were very supportive and understanding of our decision. We’ve maintained a good relationship and good dialogue with them,” he said.
Hadley believes working with brokers is a key factor in mutuals being competitive. “If we can access affordable funding and can make the model work, we would like to get out there. A reasonable portion of the population likes to use brokers due to the objectivity they provide. Right now it’s one of those competitive options that isn’t available to us because we can’t get the model to work.” However, Oxygen Home Loans general manager James Green believes the broker channel could prove overwhelming for the mutuals. “They’re little community businesses with one guy doing the balance sheets on Excel spreadsheets,” he said. “If you put a credit union on a broker panel they wouldn’t have the funding to satisfy the demand, and they don’t have the systems to write large volumes of loans.” Another issue is whether brokers will want to return to the mutuals. Some, such as Australian Central Credit Union, have marketed themselves as alternatives in direct competition with the broker channel. “They are simply taking advantage of the negative sentiment towards the banks, and are aware that brokers don’t have their organisation on their lender panel. Let’s face it. Brokers now have 40% of the market. If you’re not on a broker’s lending panel, you don’t want potential customers calling a broker,” Green said. The real question, Green says, is whether mutuals can offer competitive products to brokers. “Brokers are very elastic,” he said. “You can slap them, punch them, kick them in the balls; but if you have a cheaper home loan for them to sell they’ll be lining up outside your door. The moment they offer a better product the brokers will be back.” And in spite of some of the negative sentiment that may have developed between the two sectors, Hadley says that CUA has worked hard to maintain a relationship with the broking industry. “On a select basis, we’ve still been accepting business from brokers for some of our existing customers. We’ve been writing some loans that are probably not in our best interest, and we’ve been doing that in the interest of the relationship with our broker partners,” he said. Regardless of the competitiveness of mutual products, mutuals and brokers may have to get used to one another’s company, says Abacus head of public affairs, Mark Degotardi. With more and more attention surrounding credit unions and building societies, brokers may begin to see a greater number of borrowers leaning toward mutuals. Degotardi said that brokers must prepare for this. “As word spreads, more people are going to go to brokers and ask them to put credit unions and building societies on that list.”
If you put a credit union on a broker panel they wouldn’t have the funding to satisfy the demand
INDUSTRY NEWS IN BRIEF AFM settles record December Following a November boost in sales, AFM saw a record-setting December with a 20% increase in settlements for the month, director Iain Forbes said. Forbes believes there are several factors which have led to this outcome, including AFM’s decision to decrease its interest rate by 0.3% when the four major banks increased theirs from 0.35% to 0.45%. Looking ahead, Forbes is cautiously optimistic about 2011. “2011 will be a difficult year as licensing comes into effect. The second issue for the second half of the year is the question of exit fees. AFM will adopt a ‘wait and see’ approach, and continue to do what we do best. The emphasis [is on] organic growth,” he said. NFC sees double in 2011 Mortgage manager National Finance Club is aiming to double its business by June, following its purchase by Firstfolio. General manager Andrew Clouston said loan volumes had risen 17% between June and September 2010, while volumes between September and December had increased by a further 16%. The “turning tide against the banks” had contributed to the month-on-month growth, he said. As planned, the majority of NFC’s business also now comes from outside the Club Financial Services Group following backing received by Advantedge late last year, and a more recent deal to distribute ING Direct’s products. Ryan explains Intouch rebrand The recent rebrand of non-bank mortgage originator Intouch Home Loans – formerly Opportune Home Loans – comes as it aims to be a significant player in the non-bank sector. Managing director Paul Ryan said: “We were Opportune for three years or so, and it most definitely worked: we kicked a number of goals in a short period of existence.” Ryan said the Intouch brand reflected the need for consumers to understand their existing home loan and options. The group currently has 15 branches.
CBA chief tips future rate hikes Commonwealth Bank chief executive Ralph Norris warned of further rate rises in 2011, despite already having raised its rates above the RBA. Speaking to the Senate inquiry in banking competition last year, Norris said he expects the official cash rate to continue to rise throughout 2011. “Our economist thinks that by the end of next year it will be 100 basis points higher,” he said. Regardless of official cash rate moves, Norris warned that rate moves by banks may be necessitated by high funding costs throughout 2011. Norris believes it will be some time before high funding costs for the banks are eased. ICA supports LMI portability The Insurance Council of Australia has expressed its willingness to work with government on proposals to make LMI portable when borrowers switch lenders. ICA spokesperson Sandra van Dijk said the industry would support the reform proposals, but is waiting on details to be fleshed out. “We’re willing to work with government on any proposal to increase LMI portability. It’s really up to regulators and governments to get this happening, but we’d be keen to get moving and work with them on this. It’s
something the industry overall would support, but it’s not really up to us. We have to wait for regulators and government to rule on this,” she said. Asked if LMI transportability would be feasible from a logistical standpoint, Van Dijk commented that this would vary from company to company. Caveat lenders win ears in Canberra A newly-formed association for short-term business lenders has been acknowledged in Canberra. ASTLA – the Australian ShortTerm Lending Association – was formed in late September, and has since lobbied on matters specific to Phase 2 of the Credit Reform Bill, which encompasses short-term lending as well as other areas of credit. HomeSec Express director Paul Stone said ASTLA had received the acknowledgement of the Federal Minister for Small Business, Nick Sherry, and would be engaging in more meetings in Canberra this year to represent caveat lenders. ASTLA has submitted a response to the Phase 2 Green Paper, which argues short-term caveat and bridging finance is prevalent in the small business sector, particularly in a building industry “increasingly poorly served by the banks”.
COSL sees processing pick-up The Credit Ombudsman Service’s annual operations review saw a 46% increase in membership last year, to 13,700, as NCCP regulations made EDR scheme membership compulsory. With the increase in membership has come an 8.3% increase in complaints handled in 2010, with nearly 30% of the complaints relating to financial hardship. Ombudsman and CEO Raj Venga said 50.5% of financial hardship cases were resolved satisfactorily in favour of the consumer. The scheme saw an improvement in claim handling times, with 56.1% of complaints closed within three months of receipt, compared with 51% last year. A slight increase in cases staying Raj Venga open more than 180 days was noted. “We expect our membership to increase still further in the next six months as credit licensees continue to appoint credit representatives to act on their behalf,” Venga said.
REAL BANKING REFORM IS JUST THIRTEEN STEPS AWAY The Federal Government’s banking reform package has its fair share of detractors, but how could it be improved? Mortgage House managing director Ken Sayer supplies thirteen non bank-specific steps to achieve real banking reform In my opinion the Federal Government’s banking reform package needs considerably more attention. I applaud Treasurer Wayne Swan for tackling the banks’ stranglehold on retail banking but question why we haven’t considered total reform. Why were so few business-to-consumer non-banks included in the Government’s consultative process and initiatives to create a “competitive and sustainable banking system”, announced by a Treasurer who needs to differentiate between deferred establishment fees and exit fees? Regardless of the distinction, ditching either fee will be of zero benefit for consumers because banks will simply increase another fee to offset it. It’s about smoke and mirrors. The number of industry leaders who have criticised the Government’s plan to ban exit fees reveals the extent to which double standards exist in this industry. Everyone says they want competition, but some only want it as long as it doesn’t adversely affect their bottom line. To me this smacks of gross hypocrisy. If we want to stimulate competition we need to achieve a level playing field, and if we are serious about wanting sustainable improvements the following non bank-specific reforms, which were overlooked in the government’s initiatives, need to be implemented. 1. Reintroduce government-backed Lenders’ Mortgage Insurance (LMI) In 1965 a government Act established a company called HLIC to protect high LVR borrowers from gouging by bankrelated finance companies. Subsequently HLIC was taken over by Genworth, which maintained a market presence in competition with PMI (now QBE). Although independent of their parents’ credit ratings, both insurers suffered in the GFC. We now need an HLIC-Mark II to reintroduce a level of stability into mortgage insurance.
6. Nationalise ATM network and then offer to the public (IPO – Initial Public Offering) There’s way too much politics around ATMs. I suggest one national ATM network owned by the users through a subsequent IPO. 7. Disallow majors and their acquired financial institutions the use of brokers We’re either fair dinkum about competition or we’re not! Banks who dictate volume influence the options offered by brokers, so customers believe they’re getting choice when they’re not. The other option is for banks to remove their volume requirements. 8. Introduce cross-selling disclosure documentation when up-selling financial products The majors are increasingly making it mandatory for bank officers to cross-sell bank-related finance products to borrowers introduced by brokers. How is that creating competition? 9. Cap credit/store card interest rates (eg cash plus 6% and ban auto approvals/uplift in limits) When customers are committed to 17–27% credit card interest rates it is virtually impossible to get a mortgage approved, unless they return to the bank that issued the card. In the past banks have used credit cards as a work-around to cover funding shortfalls. Now they’re issued a $15,000 credit card. That’s not competition. That’s stitching them up! 10. Residential rates to apply if security is the borrower’s primary residence independent of use If an SME has a self-employed flavour banks charge them a substantial interest rate premium, even if the house being used as security covers the debt by a factor of two to one.
2. Introduce a national white label Authorised Deposit-taking Institution (ADI) concept for attracting deposits Non-bank lenders, apart from credit unions, cannot accept deposits. The government should introduce a white label ADI which would attract deposits that it could use for lending or funding programs such as those outlined below. (White label means both customers and government are safe.)
11. Enable credit/store card borrowers to walk away from debt if the issuer has not fully assessed an applicant’s ability to repay Retailers (often bank-backed) provide ridiculous repayment-free terms, hoping to trap the borrower later on. What is that doing for competition? Financiers have orchestrated a noose around the customers and they’re pulling it so tight the customer can’t go anywhere.
3. Introduce a PAYG 75% LVR fund priced at cash plus a margin A 75% LVR is a very low risk for the government, which would provide funds with an appropriate level of subordinated support from the originating non-bank institution. If the deal fails the non-banks’ money goes first.
12. Ditto if the mortgage is approved under the bank manager’s delegation/discretion without adequate enquiry Too often a bank manager’s friend or a customer who has a long history with a bank has their credit application approved without adequate enquiry into their financials.
4. Introduce a 75% LVR fund priced as cash plus a larger margin for the self-employed borrower with ABN and registered for GST Banks have increased SME rates by 400 points. So I say, create an SME fund with the government participating in a low risk 75% advance with the subordinated support of non-banks. Because the self-employed are a higher risk, the government charges a higher margin.
13. Abolish fixed rate break costs This is the mother of all exit fees and nobody has yet woken up to it. Rather than imposing fees at early discharge of the loan, break costs could be factored into the interest rate at settlement of the loan.
5. Open BPAY membership to non-banks Banks own BPAY and set the rules, giving them an entrenched position and making it difficult for non-banks to compete. Banks essentially charge whatever fees they want because no one can compete.
In summary, what non-banks need to do is be totally transparent; invite the Government into our world, put our points on the table, describe our businesses and explain how they work. To be fair to Treasurer Swan, we haven’t communicated to him. In other words, we’re both at fault. Ken Sayer is managing director of Mortgage House
If we want to stimulate competition we need to achieve a level playing field
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THE YEAR AHEAD AND THE ‘BROKER OF TOMORROW’ 2011 will be an interesting ride, argues MFAA CEO Phil Naylor, but opportunities abound for forward-thinking brokers 2011 is certainly shaping up to be dynamic for mortgage and finance brokers across Australia. As we turn the corner from last December’s disappointing Federal Government Banking Reform Package, the question remains: what are the real opportunities for brokers in 2011? Going on current trends, we anticipate the market will further consolidate, assisted by the implementation of the NCCP Act. We believe that consolidation will, however, bring greater opportunities for brokers actively looking to differentiate themselves on the basis of professionalism and education. One thing is for certain, now more than ever mortgage brokers must clearly articulate their value proposition in order to succeed in what is an increasingly aggressive and competitive market. Following the introduction of licensing in July 2010, the perception of accredited mortgage brokers has changed within the minds of consumers, government, media and other key stakeholders ... but there is still a long road ahead. The MFAA found awareness of brokers is heading back towards preGFC levels, and is currently high at 97 per cent, yet many consumers are still unclear about what a mortgage broker can offer. Herein lies the opportunity for our industry – we really need to better educate consumers and businesses about the benefits of using a broker. Our industry needs to do a much better job of articulating the real value of what we offer consumers and how these services save them money and time. There is a big perception gap in the market that must be addressed, and MFAA’s ongoing advertising and PR campaign will play a role.
Opportunities ahead During 2011, we can expect brokers to benefit from the flux of activity associated with traditional real estate cycles and borrowers looking for refinancing options. Following the last-minute rush to lodge Australian Credit Licence Applications last year, brokers can take a bit more time to develop consumer credit guides thanks to an Phil Naylor extended April 1 deadline, which was made to accommodate a range of changes needed to address national credit reforms. The MFAA will continue working with the Government to lobby for change. Following my appearance at the Senate Economics Committee in December, the MFAA continues to call for a permanent solution to the nonbank sector’s lack of funding access. Furthermore, we will also continue lobbying the Government to demonstrate how banning exit fees will inhibit competition by denying non-bank lenders the ability to offer lower loan rates. One thing is for sure, 2011 will definitely be an interesting time for our industry. I don’t believe we will be able to assess the real impact of licensing until mid-year; the deadline for brokers to have obtained either a license, or become a credit representative of a licensee. Either way, mortgage and finance brokers can take a seat and get ready for an interesting ride in 2011, the year for the ‘Broker of Tomorrow’.
What’s in store for 2011? We asked three of the industry’s business leaders to peer into their crystal balls and give their take on the major trends that will shape the market this year
We see a positive outlook. We have relatively low unemployment, we’ve got a lowish interest rate environment in reality over the longer term, we’ve got property prices that are stable – probably around 5% growth this year most economists are forecasting, so we aren’t going to see the price shocks some have been predicting – and the lending market is increasing somewhere between 6 and 8%. I also think there’s a lot of consumer confidence. I think people have probably taken stock of their own personal housing balance sheets, and savings are obviously a lot more visible than they were previously. So overall you’ve really got a positive outlook. From a FAST perspective we are going to focus on the three areas of our business which is residential, commercial and equipment finance, and I think we’ll expand the equipment finance and commercial lending business in particular over the next 12 months.
We’re looking forward to more competition in the lending segment – I think a lot of brokers will welcome that. There’s obviously some uncertainty around what will happen in the market, how much interest rates will move, and how much that will have an overall effect on the property market, but certainly if lending becomes a lot more competitive and opens up, and there are more lenders wanting to lend money because they are comfortable that they will make enough money doing that, then that will certainly drive a lot more business into the marketplace. I think that will be good for the brokers and their businesses, in fact it will be tremendous. At Connective, we are looking forward to continued growth – we’ve been having terrific growth over the past three or four years, and we want to continue that – obviously through supplying a lot more services and a lot more support to brokers.
I think it’s game on for the non-banks. I think the last out-of-cycle rate rise by the majors has caused people to ask ‘what’s the alternative? ’. So I think there is a huge opportunity for us in 2011. I keep using the word innovation – I’ve been using it for a while now. The type of crisis that we’ve just had always brings innovation. And I think we are going to see a lot of it. It’s going to start from the government, it will be through the majors – they’ll have to adapt to change – there’ll be innovation by the non-banks, and there’ll be innovation by the regionals. I just think that it’s a whole new world about to appear. There’s still a lot of building societies and credit unions asking ‘when is it all going to go back to normal? ’. Well, it’s never going back to normal: the world has changed, and we have to adapt and change with it. I think those that can adapt will grow quite substantially in 2011.
FORUM RESTIVE ON BANK REFORMS, AND MAJOR BANK INTEREST RATE RISES The end of 2010 was dominated by debate over the Federal Government’s proposed banking reforms, and brokers weighed in with their heartfelt opinions. Here’s what you had to say on this and other issues on the BrokerNews forum Banking shake-up? The banks will be rubbing their hands knowing the competition is all but dead from the non-bank lenders. Another huge mess caused by the Labor Government. Well done Mr Swan! Commented by: SKEPTICAL at 13 Dec 2010 12:26 PM The government has no idea how the Mortgage Broking Industry operates – bring back the Liberals now. Commented by: Kym at 13 Dec 2010 01:13 PM Another terrible decision. That’ll do me, time to close the doors on my business. Thanks Swanny. Commented by: TC at 13 Dec 2010 01:47 PM I concur. We as brokers will cop the full brunt of this, with further reduced commissions, longer clawback periods or even no up-fronts and/or trails. Makes it pretty hard to make a living. Swanny wants clients to go to ‘fourth pillar’ lenders and we as brokers are the best method of doing that, but the non-bank lenders are not going to be competitive on an even playing field. Anyone want to buy a mortgage book? ;) Commented by: mortgageandlease at 13 Dec 2010 04:44 PM I am intrigued as to why competition will drop. It worked with Wizard for six years. In that time before the GE purchase, their loans had a modest application fee, no ongoing costs, no redraw fee, very competitive interest rate and no early payment penalties or DEFs. Bankwest
has reasonable rates and also no early payments or DEFs. Why can’t this become the norm? Commented by: Allan Faint at 20 Dec 2010 01:06 PM
When NAB chairman Michael Chaney lashed out against criticism of major bank interest rate rises and a lack of competition in banking, he met with this response from one regular reader Agree. Am I missing something? The RBA is concerned about wage push inflation. This is causing them to raise the cash rate. They are concerned that a retail rate of 7–8% is not sufficient to curb the inflation monster. If the banks’ margins were to be squeezed, this would only encourage the RBA to lift their cash rate further (say to 6%). The end result is still retail rates of 7–8% (or more) but with less bank margins (and less broker margins). All this for maybe 10-20 basis points? Seriously? The real problem in my opinion is the level of debt people are “forced” to endure due to the housing supply shortage. Isn’t it time both sides of government stopped passing the buck and focused on creating infrastructure and cutting red tape to allow more housing to be established further out from the major cities? And a transport system to take these people in and out of the cities in a timely, safe and efficient manner? Isn’t it the role of government to alleviate these bottlenecks to encourage more output rather than get involved in private sector dealings with knee-jerk policy? We are so lucky to be in the economic situation we are in. We need to set Australia up for a century of prosperity and growth. Commented by: Sydney Broker at 17 Dec 2010 11:19 AM To join the debate, go to www.brokernews.com.au/forum
One year on What a difference a year makes … or not. Australian Broker reflects on the punditry, breaking news and influential trends that made headlines in the magazine 12 months ago
Issue: Australian Broker issue 7.1 Headline: Aussie looking to outshine Mortgage Choice (page 4) What we reported: Aussie executive director James Symond says the business is aiming for $12bn$14bn in mortgage settlements in 2010. By comparison, its biggest retail rival, Mortgage Choice, disclosed in end of year presentation material that it is aiming for $8.6bn in settlements in the 2010 financial year. Aussie is also looking to spend more on advertising and marketing, with a budget of $20m. A spokesperson for Mortgage Choice said the ASX-listed business would stick to its 5.5% of annual gross revenue marketing budget. In terms of retail presence, the two businesses are now evenly matched. Aussie now has 154 shopfronts, just nine fewer than Mortgage Choice. It also has a substantially bigger sales force made up of 500 salespeople and 450 mobile brokers compared to Mortgage Choice’s 577 brokers. What has happened since? Mortgage Choice has expanded its franchise operation to 170 shopfronts, and outpaced its predictions with $9bn in settlements. While no official numbers were available for Aussie’s settlements, a spokesperson said they had a good year. Aussie has continued to outpace Mortgage Choice in terms of sales force, with around 750 brokers to Mortgage Choice’s 565. Mortgage Choice plans to stick to its model of devoting 5.5% of annual gross revenue to marketing, an Aussie spokesperson said the company is planning a similar spend to last year’s $20m.
Headline: More rate pain in February and March? What we reported: The RBA will raise interest rates in February and again in March if Citi expectations prove correct. In its ‘Global and Australian GDP Outlook for 2010’ briefing, the bank’s chief economist Josh Williamson said he expected the RBA to raise the cash rate to 4.25% by the end of the first quarter. Citi believes the neutral rate
to be at 5.5%, a benchmark it expects the RBA to reach by the end of 2010. Citi’s ceiling rate prediction was not shared by AMP’s chief economist Shane Oliver or Loan Market’s chief operating office Dean Rushton. In his ‘Outlook for 2010’ report, Oliver said while the RBA would continue gradually raising the cash rate, it would reach 4.75% to 5% by year end. What has happened since? The RBA moved four times with successive rises in March, April and May. While leaving rates untouched for most of the latter part of the year, the central bank shocked analysts by lifting the official cash rate on Melbourne Cup Day in November. The major banks and smaller lenders followed, with all but 10 raising rates above the official RBA move. However, the cash rate did not reach the heights predicted by many in 2010, staying at 4.75%.
Headline: Registration: background checks essential (page 12) What we reported: How well do you know your business partners? This is a question many brokers will be asking themselves in the first few months of 2010 as they prepare to register with ASIC. As part of the process, brokers will need to make statements not only about their own past history and conduct, but also about fellow directors, secretaries, partners and trustees of their businesses. They will need to be certain that none of these people have been banned or disqualified under national or state laws, lost their relevant state licenses or had their AFS licence suspended or cancelled in the last seven years. Brokers will also need to be members of either the Financial Ombudsman Service or the Credit Ombudsman Service Ltd (COSL). What has happened since? Licensing was the big story of 2010. With concerns many brokers would not meet the cut-off, industry leaders predicted a massive decline in broker numbers. With new credit regulations coming into effect, COSL saw a massive 46% increase in its membership. At the time Australian Broker went to print, ASIC was expecting to receive 7,000–8,000 ACL applications.
Insight EXECUTIVE COUNSEL
Australian First Mortgage managing director Tanya White is one of the mortgage industry’s biggest movers and shakers. Australian Broker asks for her success tips, and finds a wealth of very positive – and practical – views on life and business that should help anyone to succeed
How to create a marketing campaign
Name a business leader you admire. Why? Julia Ross, from Ross HR Consulting. Julia was a single mum (or soon to be) when she started her business. She is self-made and has succeeded in a competitive industry. What main goal(s) got you to where you are? My main goal was always to succeed. When I was younger I didn’t really know what I needed to do to succeed or be able to recognise it when I got there. But now I believe I know what success is: it’s happiness with who you are, what you’ve achieved and being comfortable in everything you do. Is success due to talent, hard work or luck? Hard work and a bit of luck. As I answer this question, I wonder about talent: sure it helps but without hard work I don’t believe talent is enough. Attitude to me is also crucial – or should I say the ‘right attitude’. What character trait has helped you the most in business? I don’t believe in ‘No’. I was told at a young age by an elderly uncle that the word ‘can’t’ is not in the dictionary, and so I just had to think and find ways of making things happen. Maybe this programming has fostered and developed the tenacity in my personality. If I think of something, I need to explore its viability, complete the task or set the wheels in motion. I don’t put things off. I’m very much a ‘glass half-full’ person – it’s never half empty! What is the key to great business relationships? Respect for the other person – their business, their issues or the overall relationship – and the ability to gracefully accommodate change, be it good or bad. What’s the first thing to look at when growing a business? Cashflow and tools – be mindful of what you can achieve with what you have. Also, if it seems too good to be true, it probably is. What’s the best piece of advice you’ve ever received? Every day is different. Accept what you can’t change but make an impact on the things you can. What trend are you currently watching? The changing face of the banking and finance industry, ie licensing, exit fees, white labelling, mergers/acquisitions, interest rates – the list just grows. What is your next big ambition? Business related – to take AFM into new markets and new product lines. Personally – to find more time for that ever elusive work/life balance and to spend more time relaxing and not organising anyone or anything!
Marketing isn’t just for large companies. As Byron Gray of Intellitrain explains, smart marketing can be effective for even the smallest operators
here’s no doubt that companies who undertake a planned program of marketing activities are far more successful than those who either run poorly planned activities, or worse still, none at all. So, as a sole operator or small firm how can you run an effective marketing campaign? Below is a simple five-step process to creating a highly effective marketing campaign.
Where to start?
When approaching a marketing campaign most people want to start with a list of marketing activities and then end up guessing which activity or range of activities to implement, for example placing an ad in the local paper or a mail-box drop. The more effective approach, however, is to begin with the end in mind. In other words, what’s the objective of your campaign? Generate new leads? Build company awareness? Increase the number of refinancing loans? Reconnect with old clients? Generate new sources of referral?
Step 1: Clearly define your marketing objectives
Defining your objectives will help you to determine who to target, which
marketing activities to utilise, identify how much you’ll need to spend, define when and for how long the campaign will run, and most importantly, enable you to measure your results against your investment.
TIP: Always try to make your objectives as specific and measurable as possible – this will help you to remain focused and more easily track the effectiveness of the campaign.
Step 2: Define your target audience
Once you’ve determined your objectives, the next step is to identify the campaign’s target audience. By defining your target audience you’ll be able to identify the most effective ways of reaching them and therefore the most appropriate marketing activities. Your target audience will change based upon your objectives. For example, if your objective is to increase revenue from first home owners then the profile of this target and how to reach them will be vastly different to an objective of generating new referral sources – and as a result, the marketing activities will be different too.
TIP: Remember that you can run multiple campaigns simultaneously, each targeted to a unique audience. However, don’t fall into the trap of trying to run a single campaign across all your market as this will be ineffective and often costly. As the saying goes, you can’t be all things to all people.
Step 3: Define your budget
Defining your budget is a vital process. It’s important to decide early on in your campaign planning the funds you have at your disposal, as this will influence the types of marketing activities that are available to you. For example, if you can only allocate $300 to a campaign then clearly radio advertising is out of the question. However, a local letter-box drop may be more appropriate. An effective method for determining your budget (apart from the amount of cash you have in the bank) is to consider the revenue you expect to receive from the campaign, and allocate a percentage of this to marketing. Depending upon how aggressive you want to be, a good guide is to allocate approximately 10–20% of anticipated revenue to marketing. Therefore, if your objective is to close five refinancing loans per month at an average commission of $1,000 each, then your budget would be $5,000 x 10% = $500 per month. Determining your budget based upon anticipated revenue provides a number of benefits. It will keep you focused on your objectives, ensure you don’t overcommit yourself and also act as a ‘sanity check’. It forces you to ask yourself if you’ll actually gain a return on your investment.
TIP: Always try to estimate the potential revenue of your objectives even if they don’t appear to be quantifiable at first. If, for example, your objective is to gain five new referrals per week from clients, then establish a secondary objective, such as closing three of the five referrals. Then define an average revenue per sale, say $1,000, which provides you with a quantifiable revenue objective of $1,000 x 3 = $3,000.
Step 4: Establish a timeframe
Having identified your target audience and budget, the next step is to determine when your campaign will run and for how long. You should consider external and market factors such as seasons, holidays and perhaps economic conditions when determining campaign timing. Having said this, even if your timing isn’t exactly right you’re much better off running a well-planned campaign than waiting for the perfect time which, for
most people who take this approach, tends to never come! Ideally you should have a schedule of planned campaigns for the year ahead, or at the very least for the quarter ahead. This schedule will likely include multiple campaigns staggered throughout the period to ensure that you’re always marketing your business and generating new business. Some campaigns may run on a continual basis – for example, a monthly newsletter – while others are annual or even one-off.
TIP: Ideally you should have at least one continuous campaign running which is complemented with a secondary and unique campaign each quarter.
Step 5: Decide which marketing activities to use
Determining the most effective marketing activities to achieve your objective should be developed based upon your target audience, budget and timeframe. Rather than list the thousands of different marketing activities here, simply Google the phrase ‘top marketing activities’ or ‘top 100 marketing ideas’. Write a list of 10 activities per campaign that will fit your audience. Review this list again and reduce it to only five activities. Assign a cost to each of these activities. Finally, select your top three activities that will appeal to your audience, fit your budget and can be implemented in your desired timeframe. Write the following sentence for each activity, inserting the relevant information determined in Steps 1 to 4. I will achieve (insert objective) which will generate (insert revenue target) from (insert target audience) in (insert timeframe) by (insert activity). For example: I will obtain five referrals a week and close three sales to obtain $3,000 from my existing clients in March and April by offering a client a $25 gift voucher for each sale resulting from their referral, and I’ll communicate this by featuring it in my next two newsletters and a one-off email to my client database.
���FINAL TIP: Be as creative as possible, don’t reinvent the wheel (use what has worked for others) and wait for the perfect time. Start today because tomorrow never comes. Byron Gray is General Manger, Sales & Marketing of Intellitrain, a specialised provider of training for finance and mortgage brokers. Byron has been working with businesses for the last 20 years to increase their sales and profits through unique and practical sales, business development and marketing advice.
Finance Solutions’ Ray Weir has built one of Western Australia’s most successful commercial brokerages, and says patience and understanding have played a part in building his client relationships Ray Weir What is your greatest business achievement? Being an industry-elected representative on the former finance broker’s licensing board in Western Australia for eight years. What’s the key to getting business through the door? Exceeding your client’s service expectations by communicating frequently and monitoring every aspect of the transaction through to settlement, thereby generating repeat business and referrals. What goal(s) have got you to where you are? Persistence when dealing with complex applications and thorough preparation and professional presentation of loan proposals. Who has helped you the most, and how? Ted Brunton (a long-time, leading finance broker) for being a mentor when commencing my broking career in 1984, Neville Quatermaine (my first business partner) for encouraging me to become self-employed in 1987, and Martin Kane (a finance industry stalwart) for support when times were tough in 1992. What character trait do you most value in yourself? Patience when dealing with demanding commercial clients and understanding when dealing with inexperienced clients. How do you stand out from the crowd/competition? Specialised services to clients with complex financial positions and loan requirements, and by providing access to institutional and private mortgage funding. What do you tell yourself when the going gets tough? European holidays have to be paid for somehow. What is one thing you want to improve in your business? Maintenance of my client database to enable more frequent contact with clients and referrers and regular reconciliation of upfront and trailing commissions. What piece of advice would you give an ambitious broker? Take the time to prepare comprehensive lending applications and include all information required by the lending institution. You’ll earn the respect and trust of lending managers who greatly appreciate the extra trouble you’ve gone to in making their job easier. What’s your next greatest ambition? To be more effective and productive without working longer hours, and reward myself with self-drive overseas holidays.
Market talk We’re only looking at mild nominal growth at best, and some prospect of modest decline
Sluggish year ahead 2011 is predicted to see housing prices stall, but premium buyers may give the industry a boost
ast year saw the property market quickly transform from a seller’s to a buyer’s market, with median price growth beginning to wane and clearance rates faltering during the latter part of the year. As 2011 begins, analysts say the property market is in for a fairly stagnant year. Rismark managing director Christopher Joye has predicted that further cash rate rises will stall any growth the market may have been heading for. “Our central case is that there will be little to no nominal dwelling price growth over 2011, with a chance of small nominal declines. We believe that the likelihood of substantial national house price falls is remote,” Joye said. In a perfect world of perpetually frozen interest rates, he said, house values could have been expected to rise by 4–6%. However, Joye and Rismark are not counting on this perfect world to materialise, predicting at least three cash rate hikes by the end of the year. HIA chief economist Harley Dale agrees. “We actually are pretty much where the market is in predicting a cash rate of 5.5% by end of the calendar year 2011,” he said. “As a result, we primarily concur with
Christopher Joye that we’re only looking at mild nominal growth at best, and some prospect of modest decline.” Dale has pointed out that home vendors are generally the last to adjust their price expectations when the market fluctuates, but says this had well and truly occurred by the end of 2010. As a result, he said 2011 will benefit buyers far more than vendors. “I think we’ll find 2011 is a year where it’s effectively a buyer’s market. We may see homes taking longer to sell, and we may potentially see fewer aggregate listings of properties. The primary cloud hanging over all this is the interest rate environment, and not only the magnitude of rate hikes but the precise timing of those hikes.” However, stagnation in the housing market does not automatically equal a negative environment. Dale believes those potential homebuyers who aren’t frightened away by interest rate fluctuations could provide business for brokers in the year ahead. “When you have market conditions like we’re probably going to see in 2011, there’s going to be a group who won’t be feeling the material negative impact in the rising interest rate environment. They will drive transactions this year, and that will be driving demand for financial services,” Dale said. He believes this could lead to a jump in premium property demand, and that properties further down the financial spectrum could see a boost as well. “I think there will probably be improvement even below what you would call the premium end of the market. If you look at what you could loosely call the higher-middle end – the people who are maybe third or fourth homebuyers, have been in the market for a substantial number of years and have little debt – they might not be operating in the premium market, but that group could be relatively active,” he said.
NUMBER CRUNCHING Auction clearance rates: Week ending December 19
Median property prices – November
TOP SUBURB OF 2010 Peppermint Grove, Perth. Median house price
Adelaide Brisbane Canberra Melbourne Sydney 0%
Source: RP Data
The percentage of people below their mid-30s who move back in with their parents after leaving home
Source: Australian Bureau of Statistics
Source: RP Data
MARKET NEWS IN BRIEF 2010 year of contrasts for property market
Banks not ‘taking turns’ on rate rises
Bendigo kickstarts market with RMBS issue
RP Data has released its final Property Pulse report for 2010, and has characterised the year as one of contrasts for the property market. According to research director Tim Lawless, the Australian housing market saw a change in direction in June, with capital growth stagnating after 17 consecutive months of gains. Over the 18 months to June, the combined capital cities saw home values increase by 18.5%, while over the free months ending in October, home values were essentially flat. Lawless said higher interest rates were one of the key factors in the market slowdown.
A study by an economics professor at the Melbourne Business School has debunked the idea of the big four banks “taking turns” on rate rises. Amid the growing banking debate CBA, NAB, Westpac and ANZ have been accused of collusive practices in moving on interest rates. However, Professor Joshua Gans has said on his website economics.com.au that his data shows “there is no apparent pattern of taking turns”. The data indicated that the CBA moved first on rates 16 times since 1996, while Westpac and NAB each moved first 11 times and ANZ moved first only seven times. Gans has also said that most of the time in the period from 1996 to present, mortgage rates only moved in response to changes in the Reserve Bank cash rate.
Bendigo and Adelaide Bank has announced the launch of a new $775m RMBS issue in an attempt to bolster the mortgage market and broaden its base of investors. According to NAB, which managed the sale, more than half the bonds issued will be fixed rate bullet bonds which will mature in one to three years. The structure of the bonds removes prepayment risk for investors and may make them less expensive to issue than traditional RMBS. John Barry, NAB head of securitisation, has said the structure of the bonds is likely to bring interest from both traditional and new investors. “A crucial step in the recovery of the Australian RMBS market is to entice new investors,” he said. The Australian Office of Financial Management is expected to support the sale.
Housing supply still scarce in 2011 The Housing Industry Association claims the housing market will continue to be affected by a housing supply deficit this year. Citing the IMF’s recent view that house prices were overvalued by only 10% – in contrast to its earlier calculations of 25% – the HIA said the housing market was supported by fundamentals including strong population growth and high real incomes. However, HIA’s work on underlying demand indicates Australia will continue to run “large annual deficits” between underlying demand for dwellings and the completion of dwellings, according to HIA senior economist Andrew Harvey. “So in the longer term Australia’s housing market is underpinned by the immutable forces of insufficient supply and robust underlying demand,” Harvey said.
Asia-Pacific leads house price growth The Asia-Pacific region has seen the largest growth in house prices over 2010. The global house price index released by real estate agent Knight Frank shows that the region recorded average growth of 9.9%, while housing prices grew more modestly in other regions and even fell dramatically in some countries. Knight Frank head of research Liam Bailey said that the results show the global housing market recovery may be fading. In regard to the Australian market, Bailey said that ABS statistics recording a 20% price rise in the year to March 2010 may be erased in 2011.
Housing affordability hits new low Housing affordability in Australia has hit a new low, according to the Real Estate Institute of Australia. The REIA’s Deposit Power Housing Affordability Report shows that the proportion of income required to meet mortgage repayments increased by 5.8% to 34.8% over the year. “These all-time lows are extremely concerning. Not only is affordability on the decline, but loans being issued are down and first home buyer participation in the market is the lowest it has been in six years,” REIA president David Airey said.
Feature OFF THE CUFF What do you do to unwind? Surfing early in the morning before the crowd arrives. There is nothing better than watching the sun rise over the ocean.
Tim Brown Chief executive VOW FINANCIAL What was the last book you read? Jeffrey Archer’s The Fourth Estate, an interesting read about media moguls. There are a lot of comparisons between Rupert Murdoch and the late Kerry Packer. If you did not live in Australia, where would you live and why? Difficult question as there are so many interesting places in the world I have still not seen. I suspect it would be somewhere in Europe that is reasonably inexpensive such as Spain, and then use that as a base to travel around the rest of Europe. If you could sit down to lunch with anyone you like, who would it be? That’s easy. My family. I love getting together with my Mum and Dad, my five brothers and sister and their respective spouses. We all get on so well and always have a great time when we get together at any family function. What was the first job you ever had? Selling Sharpe Brothers Soft Drinks door to door. I used to get $1 for every new order. It was pretty tough selling in the middle of winter in Canberra.
What’s the most extravagant gift you ever bought yourself? An Audi TT. I went in to buy an Audi A4 and then saw the TT in the showroom and fell in love with it on the spot. Tragically, I had to sell it as it attracted too much attention from the police, and I could never drive it as fast as I wanted anyway. What CD is currently playing in your car stereo? One CD that has remained in my car for over three decades is the AC/DC classic Highway to Hell. I never get sick of listening to Bon Scott’s voice. If you could give anyone starting out in business one piece of advice, what would it be? Spend the money and get a good business plan drawn up and then review it regularly. Take your time to find the right location and the right staff. The job will be so much easier if you can get the foundations right. If I was not working in the mortgage industry, I would like to be …? I’ve often thought about owning my own retail shop, such as a Harvey Norman store. The service you get from most retailers is so ordinary I believe I could do a much better job. Where was the last place you went on holiday? I had a driving holiday around Spain and France; it’s the best way to see the countryside. I never booked more than three days in advance with the exception of Paris. There are some great places to see and never enough time to take it all in.
CAUGHT ON CAMERA Club Financial Services hosted 75 franchisees on the Sunshine Coast late last year, where they were greeted with leis and Polynesian dancers – as well as regular information sessions. The event made for an even closer ‘Club’
Tim O’Shea, Novina Waddell, Damien Waters and Ray Dib from CFS Southport with the Hawaiian Paradise Polynesian dancers
Paul Bieg, Mike Wegener & David Wegener from Club Financial Services Norwood, winner of the Franchise of the Year
John Finucane (Advantedge), Chris Evans (PLMS), Laurie Shaw (ING Direct) and Darren McLeod (FirstMac) combine to inform brokers at an industry panel discussion
Mike Wegener (CFS Norwood), Ray Dib (CFS Southport), Gena Coote (ING Direct), Andrew Clouston (CFS) and David Wegener (CFS Norwood)
Bec Waters (CFS) with Lisa Nili (Club Money Management)
Brett Harris, Janine Harris, David Latter, Debbie Latter, Donna Plumridge and Glen Plumridge from CFS Maitland
Caught on camera Connective’s 2010 annual conference was held in Noosa late last year. The group’s principals managed to squeeze the most out of three activityfilled days, which aimed to help its brokers build more profitable businesses in 2011 1
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Doug Mathlin (FrontRunner Consulting Group)
Matthew Hassan (Senior Economist, Westpac)
Entertainer Emma Lancaster (MDevine)
Ivo DeJesus (Sanford Finance), Yordan Kirov (Majestic Finance) and Ryan Gair (AFM)
Rick Symington (AFM), Kim Mustar (Deposit Power), Stuart Bayliss (SGB Finance) and Amy and Raymond Kos (Mortgage Blitz)
Lisa Wright (Australian Financial Innovations), John Tchetchenian (Altitude Capital) and Maree Imbruglia (Australian Financial Innovations)
Paul Eadon (Eadon Home Loans), Andrew Mirams (Intuitive Finance) and Allan Culbertson (WMP Finance)
Brendon Noney (Guardian Conveyancers) and Lisa Wright (Australian Financial Innovations)
Fiona Brown and Mark Haron (Connective)
Image 10 Cameron Winsor, David Ewens, Daryl Smith, Lucy Ward and Pat Cranshaw (Bankwest) Image 11 Sylvia MacFarlane (Finance Direct), Brent Starrenburg, Matthew La Terra, Stephanie Flouris, Mark McColl, Anik Forrest and Marcell Midolo (Connective) with ‘Dr. Phil’ Image 12 Back: Ray O’Hara (OwnHome) and Les Harris (Mortgage 123) Image 13 ‘Rambo’ (Ben Price) and Murray Lees (Connective) Image 14 Jonathan and Melanie Fulton (A2Z Finance Solutions)
Image 15 Rao Eravanaan (Rao Future Finance)
AFG tries on Wolf’s clothing
Jordan Belfort, AKA ‘The Wolf of Wall Street’
rug addict. Criminal. Not words Insider would normally associate with a role model – or someone you’d like to invite to breakfast. Not so Australian Finance Group. Late last year, AFG directors invited special guest speaker Jordan Belfort – otherwise known as ‘The Wolf of Wall Street’ – in for a breakfast seminar in Perth. In an invite to potential guests, AFG proclaimed that in the 1990s the notorious Wolf had sunk to “the lowest societal lows” when he succumbed to “a massive drug addiction” and spent 22 months in a Federal prison. Eggs, toast anyone? The invite went on to say that while soaring to the highest financial heights – where he earned over $50m a year – Belfort had only “barely” survived his rise and fall, but had cemented his tale of redemption by remaining “12 years sober”. Coffee? Perhaps Insider was seeing another side to Australia’s largest independent aggregator and its directors. Admittedly, Belfort has long since reformed his ways and is now a renowned motivational speaker – hence his positioning as
“the ultimate redemption story”. And he certainly had a tale to tell. During the heady 1990s he managed to provide over $1bn of financing for various public companies, and held controlling stakes in more than 30 of them. Insider only hopes the audience took home the ‘right’ message. That is, we hope we aren’t going to see too many high-flying, wannabe entrepreneurial brokers indulging more frequently in hedonistic hobbies, only to end in a downward, business-destroying spiral. After all, there may be those who tire of being tame ‘sheep’, and would like to try on the wolf’s clothing. Then again, Insider thinks that perhaps the industry would be a touch more exciting if they did.
Wayne Swan’s reform package in slightly different ways. The problem Insider faced was how to cover the topic without seeming repetitive. Thus, he’s come up with a single story that summarises the whole shebang: Man in suit criticises government A man in a suit has today expressed anger toward the government, joining a growing chorus of men in suits also angry with something the government has either done or said. “I’m angry,” the man in a suit told a group of men in suits specially convened this week to listen to men wearing suits. “I, and other men in suits like mine, do not like what the government has done and/or said. I am wearing a suit. You must listen to me.” Echoing his sentiments was another man in a suit whose round, purple face bulged from the sides of his collar like sausage spilling out of its casing. The other besuited man told the panel of suit-wearing men, his jowls quivering in indignation, that he represented a key group of men who wear suits, and that all of them were angry. “Why did they do this?” he asked, sweat darkening the underarms of his suit. “Didn’t they know how angry it would make me? The government! Ahh! My suit!” Further testimony from adult human males clad in suits is expected tomorrow, as the panel of suit-fancying men prepares itself for more anger directed at the
Long story short
he Senate inquiry into banking competition has brought forth a lot of necessary insight into the nature of the Australian finance sector. It’s also become a bit boring. Insider, for one, had to stifle yawns as CEO after CEO sat before the economics committee and lambasted the same aspects of Treasurer
ASIC: now a watchdog with teeth
government. Of particular interest to many following the proceedings will be a statement from a man wearing a suit. Speaking to reporters earlier, the man in a suit hinted his testimony will contain anger toward the government. “I am a man and I have a suit,” he commented. “Also I am angry.”
Boom in bannings
nsider likes to keep an eye on trends in the financial planning industry, as it seems that what happens in this more ‘mature’ market is often replicated when it comes to brokers. If so – watch out for the new banning boom. Mortgage broker bannings? That’s right. ASIC has to date been quite easygoing on brokers. There’s been talk of giving brokers time, working with them to get things right, as well as a number of other quaint turns of phrase designed to placate. However, 1 January has now passed, and if Insider is right, the bannings are about to start. Good for journalists, not so for brokers. ASICs annual report from 2009–10 shows the regulator banned 22 parties from providing financial services during the financial year (from periods ranging between three years, right up to permanent), compared with 42 the previous year. It also cancelled 16 licences, and suspended three. Indeed, ASIC is probably casting about for some scapegoats as we speak – they don’t call it a ‘watchdog’ for nothing. Dodgy brokers, you are on notice.
Receive breaking news updates direct to your inbox. Sign-up for the FREE e-newsletter at www.brokernews.com.au AGGREGATOR / WHOLESALE BROKER LoanKit 1800 466 085 www.loankit.com.au page 12
Liberty Financial 13 11 80 www.liberty.com.au page 3 MKM Capital 1300 762 151 www.mkmcapital.com.au page 2
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MORTGAGE MANAGER / NON-BANK National Finance Club 1300 327 600 www.nationalfinanceclub.com.au email@example.com page 19
FRANCHISE Wealth Today 08 9207 1433 www.wealthtoday.com.au page 7
Vault Mortgage Corporation 1300 798 676 www.vaultmortgage.com.au page 10
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www.residex.com.au The House Price Information People
OTHER SERVICES Residex 1300 139 775 www.residex.com.au page 31
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