$4.95 POST APPROVED PP255003/06906
ISSUE 8.02 February 2011
Online revolution will yield uncertain future
Desire for more
anonymity may push borrowers to web Online mortgage sales could alter the face of the mortgage broking industry, experts believe, leaving
brokers entrenched in traditional modes of broking facing potential obsolescence. Financial services firm Firstfolio currently sees in excess of $50m a month through its direct online home loan offering, and expects to see this double in the next 12 to 18 months.
With the average client becoming increasingly web-savvy and lenders offering products direct online, experts suggest brokers are facing an industrywide technological change. “My view is that in 10 to 15 years the majority of transactions will be completed online,” Firstfolio executive director Mark Flack said. “The stake for brokers is remaining relevant in a changing market. If you don’t adapt then you will not survive. The issue will be whether the banks develop their own direct-to-market online strategies. To date they have not really delivered in this area, but have the capital to do so.” Principal at consultancy group SAKS Consulting, Steve Paterson, also sees the potential for online sales growth. “It’s certain that upcoming generations will be more comfortable online, and borrowers who get a lower rate online will certainly be influenced to accelerate a change in procedures,” he said. Mortgage industry analyst Tony Crossley said the growing trend towards online commerce may come from consumer reticence to personally meet with a broker. “I suspect a lot of borrowers like the convenience of using brokers and like the knowledge they’re getting a good deal, but may be a bit concerned about the intimacy of the broker relationship,” he said. “A number of borrowers may enjoy the anonymity of online transactions. Page 18 cont.
Gloom our boom Unhappiness with existing mortgages opens door for brokers Page 2
Queensland floods threaten Sunshine State trail book values Page 8
Regulator readies its ranks for surveillance and enforcement Page 19
Inside this issue Opinion 20 The case for charging a fee Viewpoint 21 Fee-for-service brokers speak Insight 22 US property advice not easy Toolkit 24 What is your trail book worth? Market talk 26 Premium property boom People 28 Brokers fight on as floods recede Caught on camera 29 Drinks at sunset with Homeloans
News Dissatisfaction opens doorway for brokers Vast measures of consumer dissatisfaction with existing mortgages is creating a huge opportunity for third-party mortgage brokers to increase market share this year, according to research from ING Direct. The bank’s latest Financial Wellbeing Index has found only 46% of homeowners are satisfied with their loan, and about one in three – or 31% – are currently thinking of refinancing.
However, barriers to refinancing are holding borrowers back, with 46% saying that the paperwork involved makes refinancing too hard, and 30% saying there’s not enough difference between lenders to make switching worthwhile. A large swathe of homeowners – 65% – also name exit fees as the main deterrent to refinancing. MFAA CEO Phil Naylor said the findings open the way for
Consumers unhappy but stuck with mortgages • Only 46% of homeowners are satisfied with their home loan • One in three homeowners (31%) are thinking of refinancing • For 65% of homeowners, exit fees are the main deterrent to refinancing • Almost half (46%) say the paperwork involved makes refinancing too hard • 30% say there’s not enough difference between lenders to make switching worthwhile Source: ING Direct Financial Wellbeing Index
Boutiques face licence law challenge Smaller lenders may find it harder to use the broker channel this year, due to the risks for ACL holders in allowing their credit representatives to recommend offpanel lenders. Gadens senior banking and finance partner Jon Denovan said there is the potential for some boutique lenders to be disadvantaged if licensees do not take on the “significant risks” of authorising credit representatives to go to off-panel lenders. Although there have been over 6,800 ACL licenses issued by ASIC under the new regime, many of these are small lenders, servicers and other intermediaries, not necessarily brokers. Denovan said this means
there is a large number of brokers who are credit representatives, who will be limited to credit activities authorised by their appointment. “Boutique lenders could get hit by it, certainly,” LoanKit head Kym Rampal said. “I doubt very much that they (the licence holder) would give a credit rep permission to deal directly with that boutique lender, as there is too much risk for the licence holder.” However, Rampal said as most brokers would have assessed the lenders they frequently used against their aggregator’s panel before making a decision to join a licence holder as a credit rep, there was a likelihood that the effect of the restrictions will be minimal.
brokers to help consumers who are concerned about their current lender and are not sure what to do. “It gives brokers an ideal opportunity to extend their market share,” he said. Naylor said that many of the findings are “perceptions” among homeowners rather than “realities”, and that a conversation with a mortgage broker could steer them through points – such as exit fees – that shouldn’t necessarily be barriers. ING Direct CEO Don Koch said the level of dissatisfaction among home loan borrowers, and the view that lenders are all the same, is a wake-up call for providers to prove to consumers that this is not the case. “The fact is that home loans vary widely and homeowners can potentially save a lot of money,” Koch said. “Switching is easier than people think and increasing numbers of lenders are removing exit fees altogether.”
EDITOR Ben Abbott COPY & FEATURES JOURNALIST Adam Smith PRODUCTION EDITORS Jennifer Cross, Richard Garfield ART & PRODUCTION DESIGN MANAGER Jacqui Alexander DESIGNER Lucila Lamas SALES & MARKETING SALES MANAGER Simon Kerslake ACCOUNT MANAGER Rajan Khatak SENIOR MARKETING EXECUTIVE Kerry Buckley MARKETING EXECUTIVE Anna Keane COMMUNICATIONS EXECUTIVE Claire Costigan TRAFFIC MANAGER Stacey Rudd CORPORATE DIRECTORS Mike Shipley, Claire Preen MANAGING EDITOR George Walmsley PUBLISHING DIRECTOR Justin Kennedy CHIEF INFORMATION OFFICER Colin Chan HUMAN RESOURCES MANAGER Julia Bookallil
Editorial enquiries Ben Abbott tel: +61 2 8437 4716 email@example.com Advertising sales Simon Kerslake tel: +61 2 8437 4786 firstname.lastname@example.org
“I’m sure there will be some effect,” he said. “Let’s just say there’s 3,000 credit reps and they would use a boutique lender once a year, there’s the potential of 3,00 loans lost for those lenders. So it will have some effect, but I don’t think it will be a dramatic effect.” The MFAA is expected to provide guidance to brokers on this issue in the near future.
Rajan Khatak tel: +61 2 8437 4772 email@example.com Subscriptions tel: +61 2 8437 4731 • fax: +61 2 9439 4599 firstname.lastname@example.org Key Media www.keymedia.com.au Key Media Pty Ltd, Regional head office, Level 10, 1 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 fax: +61 2 9439 4599 Offices in Singapore, Hong Kong, Toronto www.brokernews.com.au Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as Australian Broker magazine can accept no responsibility for loss
Australian Broker is the most-often read industry publication, according to independent research carried out by the Ehrenberg-Bass Institute for Marketing Science at the University of South Australia in December 2008. The research also found that brokers rate Australian Broker as the best for both news content and feature articles, followed by sister publication MPA. Overall, on all categories, Australian Broker ranks top followed by MPA. The results were based on a sample of 405 respondents who were the subject of telephone interviews.
This magazine is printed on paper produced from 100% sustainable forestry, grown and managed specifically for the paper pulp industry
For all the latest mortgage industry news, visit www.brokernews.com.au
Advantedge flush with trail book buyers
A pioneering buy/sell facility for all FAST, Choice and PLAN broker trail books has seen initial buyer interest outweigh sellers in its first few months of operation. Launched in November, the facility – which creates a guaranteed market for Advantedge’s constituent brokers – has seen 200 buyers register in the hope of purchasing trail books. Advantedge’s general manager of distribution, Steve Weston,
said some had also expressed interest in selling, with over 50 parties talking to Advantedge about the value of their books. While no sales are completed, some have already been approved. “There are about four times as many buyers registered as there are sellers,” Weston said. “There are clearly a number of brokers who want to beef up their businesses, so that will be an interesting one to watch in terms of traction this year,” he added. Weston puts buyers outnumbering sellers down to the likelihood that potential candidates had not given much thought to selling their trail books. “We will ramp up as we go through and have a look at the brokers who decided to exit the industry – who did not become licensed – and be more targeted in our communications to them, asking what their intentions are,” he said.
Weston said the main advantage of selling a book is that the value is realised upfront, and brokers will not need to worry about ongoing customer enquiries they can’t service. Following sales to Advantedge, the group will repackage the books and on-sell them to other interested broking groups, though for now this will remain within each aggregator basket. Weston said Advantedge would attempt to support its brokers growing their business in 2011, in
terms of profitability and value through new customer processes under NCCP, and by encouraging diversification by its members to meet a wider range of borrower needs. As part of this push, the NAB-owned group is in the process of rolling out a single IT platform for brokers that caters for all NCCP-related requirements. It is also ramping up sales through the broker channel of a brand new debt insurance product.
Advantedge hits the ground running in 2011 Trail book buy/ sell facility
50 expressions of interest from prospective trail book sellers, and 200 interested buyers across the PLAN, Choice and FAST groups
‘Loan protect’ debt insurance product
200 brokers accredited to sell new product; call centre established with dedicated BDM’s to join the team in February
One platform IT system
50 pilot users providing feedback, which will increase to 300 by March. Rollout continues until end of 2011
Ballast sets sights on further growth WA-based aggregator Ballast will target further growth in 2011, particularly on the east coast where it made a splash through the acquisition of sub-aggregator Members First Group. The strategic move – which took Ballast broker numbers up from 70 to 185 – may be followed by similar deals, including a possible acquisition later in 2011. “We wouldn’t rule out another acquisition, provided it was a strategic and cultural fit – it
wouldn’t be acquiring for the sake of acquiring,” Ballast general manager Frank Paratore said. Paratore said the Members First deal – which propelled Ballast into the top 15 aggregators – was a complimentary fit for both businesses. Members First members would maintain their branding, and play a consultative role in development of the business, while gaining access to accounting and SMSF expertise.
For Ballast, the strategic acquisition fit well due to Members First’s diversified offering – which includes financial advice – as well as its geographic reach. Ballast now has a presence in NSW, Victoria, Queensland and South Australia, as well as WA. Paratore said Ballast was focusing on further acquisition opportunities to grow in new markets across Australia, rather than pursuing the time and
resource-intensive path of organic growth. The group will also expand its retail presence, with the opening of its first branch in South Australia underway. There is potential for more branches on the east coast for members who prefer the retail model. Paratore said the aggregator’s performance throughout the financial crisis, as well as its recent rapid expansion which includes eight retail branches in WA, had raised Ballast’s profile.
Read the latest issue of Australian Broker online www.brokernews.com.au
Brokers pass December licensing test
With the deadline for ACL applications having come and gone, the expectation that many brokers would not meet the 31 December deadline may have been false. According to MFAA CEO Phil Naylor, at this stage it appears most brokers have beaten the deadline. “I haven’t received the final details, but my understanding is that the majority of brokers intending to apply for a license have lodged their applications,” he said. Naylor said that ASIC was prepared for the rush of lastminute applications it received as 2010 wound down. “From all reports it appears ASIC has
handled the volume of applications well,” he said. As the 31 December deadline loomed, many industry figures predicted a significant drop in broker numbers in 2011. Whether this comes to pass will not be known for some time, Naylor says. “We haven’t seen it yet. I guess it remains to be seen over the next 6 months. While the deadline for filing the application for a license was December 31, the deadline for holding a license is 30 June. We may not know until then what the industry will look like.” However, the MFAA has yet to see a significant decline in broker numbers, Naylor said. “Though our membership
numbers are dropping, we’re not seeing a sharp drop at this stage.” Should a significant drop in broker numbers occur, Naylor believes those remaining in the industry should see larger loan volumes in 2011. “I don’t see anything in the environment that would indicate anything other than broker share continuing to increase. Fewer players should mean better figures for those still in the market,” he said. Prior to the licensing deadline, Naylor expressed concern that brokers were leaving it to the last minute to apply to ASIC, and suggested that many may miss the deadline.
Housing prices frozen in 2011 NAB has released its Residential Property Index for December, showing a fall of 17 points from the previous quarter. Median price expectations for housing point to a relatively flat market, with falls of 0.5% expected over the next 12 months. NAB chief economist, Alan Oster, said the bank believes stagnant prices will be the trend for 2011. “We think markets will remain broadly flat. The weakest market is Brisbane – it was before the floods, and is now presumably weaker,” Oster said. In spite of stalled prices and even modest falls in the market, Oster said the bank does not believe Australia is on the verge of a housing bust. “Given the supply imbalance across Australia, it’s unlikely we will see much more than sideways [movement],” he said.
NAB’s index echoes the findings of ANZ’s housing predictions, which point to median prices stalling and beginning to decline in some areas. ANZ senior economist for property and financial system research, Ange Montalti, indicated the bank believes rising interest rates will lead to caution among builders, but that housing prices will begin to see growth again in 2011. These predictions seem to be supported by Residex’s 2010 Market Wrap, which showed median house prices grew throughout 2010 but slowed in the final quarter of the year. The report indicated markets in Perth, Hobart and Darwin even declined slightly. Residex, however, predicts these markets have bottomed out and slow growth will occur throughout 2011.
Oster declined to comment on how brokers should respond to the findings of the index, but hinted at opportunities in certain sections of the market. “The survey suggests lower-priced properties closer to the city will do best,” Oster said. And while a stalled housing market could lead the RBA to hold
off on interest rate rises in the immediate future, Oster said that the cash rate is still expected to head upward throughout 2011. “We still see two 25 point rises in mid-year or late 2011. If the floods have a bigger impact than many expect, then it might delay tightening, as could lower CPI numbers,” he said.
First National bullish First National Real Estate is predicting a turnaround year for the property market, saying some areas will perform quite strongly, others not as well, but that overall there are signs the market will hold and pick up as the year progresses. First National CEO Ray Ellis said this is based on expectations on interest rates, underpinned by strong economic fundamentals. “The market has slowed and is flattening out but there are still some great opportunities out there,” Ellis said. “We expect investors will play a much bigger role in the property market next year, taking advantage of low vacancy rates, strong returns and reduced competition from first home buyers. This will boost some areas around Australia which will drag other non-performing areas along and provide benefits usually reserved for mining towns in a resources boom,” Ellis said.
For all the latest mortgage industry news, visit www.brokernews.com.au
Rates to rise after Flooding could affect trail incomes Queensland chaos With banks expected to experience mortgage portfolio pain as a result of Queensland’s floods, declining recovery rates could trickle down to brokers. Steve Paterson, principal with SAKS Consulting and mortgage industry expert, has commented that brokers should expect repayment moratoriums issued by banks to impact trail income. “It depends on the individual lender and broker arrangements, but if lenders permit a few months of repayment moratoriums, then I’d expect that as the lender is not being paid then that’s the same as other arrears, and thus trails won’t be paid,” Paterson said.
Counting the cost: the impact of Qld’s floods 35–40,000 affected properties in Queensland Fifty per cent estimated to have a mortgage 0.3–0.6% expected slowdown in Queensland’s economic growth Twenty per cent of inundated homes with no insurance are expected to default Moreover, banks with portfolios in affected areas could tighten lending policy as a result of losses incurred from the flooding. A report from Goldman Sachs indicates $4.1bn worth of Queensland home loans could be at risk of default due to the flooding, equating to 16,500 home loans defaulting. The Goldman Sachs research also estimates 2,950 commercial loans worth $737m could be at risk. The company’s research reveals that up to 67% of homes and businesses had no insurance or flood coverage.
“A big issue will be any lack of general insurance on badly affected properties, and the impact on owners with mortgages,” Paterson said. “Owners will still owe the debt, and the property may have greatly impaired value well below the debt. This will clearly affect borrowers and lenders, and will cause huge stress. Lenders might now reassess lending policy in many actual or new potentially flood-affected areas. That could lead to a drop in values, more losses and big restraint on new transactions. Any pocket-by-pocket pull-back on approvals could have far-reaching consequences.” And as borrowers face financial difficulties and defaults or refinances increase, Paterson believes commission clawbacks could occur as well. “The way I see many recent lender attitudes it’s feasible any or all reasons might be called upon to claw back,” he said. Much of the impact, Paterson believes, may be dependent on the willingness of LMI carriers to cover losses on mortgaged properties where general insurers will not pay out. “An issue worth exploring could be: will LMI carriers pick up lender losses where the general insurer won’t pay, or where there is no general insurance at all?” he said. Regardless of the flood’s effect on broker income or bank mortgage portfolios, Paterson said brokers should advise their affected clients to ask for help from their lenders. He commented that brokers should tell clients to “discuss your mortgage with your lender ASAP and ask for an initial minimum three-month payment moratorium, and check out your general insurance flood coverage”.
Shadow Treasurer Joe Hockey has urged the Reserve Bank to take a cautious approach when assessing the impact of Queensland’s floods on inflation in the coming months. Speaking to the Mortgage House conference in Sydney, Mr Hockey said inflation was likely to be boosted as a result of rebuilding efforts and supply shortages in Queensland. “Food inflation is likely to occur, and headline inflation will be higher,” he said. Mr Hockey’s comments have echoed a report by Deutsche Bank, which also foresees a rise in inflation in the aftermath of the floods. The bank’s assessment of the flood’s impact on the Australian economy estimates first quarter GDP growth will be reduced by 0.5%. However, this slowdown may not be enough to keep rates on hold, due to flood-related inflationary pressures. “Given Queensland is a key producer of supply-constrained commodities, we are more inclined to view the ultimate economic impact of these floods through the lens of an inflationary supply shock,” the bank’s report said. “The flooding in Queensland is likely to have an identifiable impact on the Consumer Price Index in our view,” the report
stated. “The clearest impacts should be seen in food prices – specifically fruit and vegetables as well as meat prices.” Annette Beacher, head of Asia-Pacific Research for TD Securities, agrees that upward pressure could be placed on inflation as a result of the floods. “The consequences of the Queensland floods leaves inflation risks firmly tilted to the upside, where the immediate fallout is a likely spike in food price inflation in the March quarter,” Beacher said. “However, with vast tracts of the Brisbane CBD severely affected by the floods, the concentration of infrastructure to be repaired could exacerbate already stretched labour and building materials, hence the upside to inflation could last longer than the temporary food price spike. We will be closely watching the inflation gauge in the coming months for concrete evidence of these assertions.” Hockey, meanwhile, has cautioned the RBA against raising interest rates as a result of this growing inflation. “The RBA should look through the one-off impact of the floods when assessing interest rates. The coalition is saying, ‘Do not raise rates as a result of the floods,’” he said.
Bank mortgage books feel flood pain Property damage will affect borrowers’ ability to pay either temporarily or permanently, resulting in lower-than-normal recovery rates Borrowers may experience ‘affordability shock’ due to an increase in expenses and loss of income Banks with portfolios in the affected areas may be hit by an income shortfall and an increase in losses, as lender’s mortgage insurance does not cover flood risk Source: Fitch Ratings
For all the latest mortgage industry news, visit www.brokernews.com.au
Major bank backlash a new chance to capitalise
Mortgage industry analyst Tony Crossley has stated that tapping into consumer anger against major banks will be one of the primary issues for brokers in 2011.
Crossley told Australian Broker that brokers must seek ways to ride the wave of public sentiment about the banking sector. “The biggest challenge facing the broking industry is how they capitalise on the general level of consumer and media push-back against major lenders and their apparent ability to re-price products at will,” he said. While brokers can position themselves as offering alternatives to major banks, Crossley has warned that the majors still hold a competitive edge that is unlikely to erode anytime soon. “Brokers will always remain constrained by the fact that
Brokers to see boost in the year ahead
FBAA president Peter White has predicted that the year ahead will be better than expected for brokers. White commented that the shake-up caused by the 31 December licensing deadline will see brokers handling increased loan volumes shared among fewer players in the marketplace. “For those who made it through the tough times of the GFC, the years ahead will be very, very good,” he said. However, White does not foresee a significant decrease in the number of professional brokers. “There were a lot of predictions that broker numbers would drop 25–30% once licensing came into effect,” he said. “I don’t believe this reduction has come from the departure of long-term professionals. I think it’s come from part-timers, or people just dabbling in the
industry. The industry probably needed a bit of a clean out.” Where full-time brokers are concerned, White believes they will stay in the industry in greater numbers than most have predicted. “I predicted at the advent of NCCP regulations that far more people would get their license than was expected, and that’s come to pass,” White said. Though he expects the mortgage market to improve and brokers to prosper, the years ahead will bring radical changes to the industry. The most significant of these, White predicts, will be the advent of the oft-discussed fee for service model. “People need to accept the fact that it’s not a matter of ‘it can’t happen’, it can and will happen,” he said. However, White said brokers need not be wary of this change. “I’m quite an advocate for fee for service,” he said. “It’s important all brokers understand their own monetary value. Clients are getting complete independence versus just walking into a bank and grabbing what’s on the shelf. When I was out there doing home loans, my latest appointment was at 1.00am. What bank is going to do that? ” For more on fee for service, see opinion on page 20
non-major lenders are at a funding disadvantage. They are unlikely in the near future, no matter what the government does, to be able to raise funding through securitisation at any level like they were able to before the GFC,” he said. “Brokers have to tread through the minefield of seeking to support non-banks whenever they can while dealing with the fact that non-major lenders will not be able to secure funding at the levels they saw in the mid-90s.” However, Crossley believes some consumers will begin to favour non-banks, despite the funding advantage held by the majors. This, Crossley has stated, is an area brokers can
capitalise upon in marketing themselves to clients. “The broker industry has been accused in the past of favouring particular lenders because they pay a higher commission. We’re now in a place where consumers and brokers are actually on the same side in thinking it would be beneficial for lenders other than the major lenders to take a good chunk of the market.” Crossley has previously been muted in his predictions of a growth in broker market share, saying that it has been flat for some time, and would require “a different market” for the channel to claim the levels of market share that have been seen overseas.
Nationwide Lending partners with I-Financial Nationwide Lending has announced its addition to I-Financial’s Approved Provider List, in a move that will allow brokers who are credit representatives under I-Financial’s ACL to write loans with Nationwide. “Our alliance with I-Financial means brokers now don’t have to rely on their aggregator’s approval, but can be credit representatives under I-Financial and still deal directly with us,” Nationwide CEO Glen Jones said. While Jones said Nationwide Lending has not seen a decline in business as a result of some credit reps not being able to write loans through the lender, he commented that the company’s number of accredited brokers has dropped slightly. “A good culling of nonproductive brokers on our books transpired as a result of assessing which of our brokers took their business seriously, and wanted total flexibility in how they operate their respective businesses,” Jones said. This slight decline in numbers is not a negative development, Jones believes. “Quality is always far better than quantity, and legislation has weeded out a lot of non-serious brokers in the industry. At the end of the day, we are more than happy having around 200 quality brokers who support non-bank lending and know how to sell, instead of having a cast of thousands wasting everyone’s time,” he said.
I-Financial managing director Craig Morgan said the addition of Nationwide to the company’s lending panel adds to his expectation that I-Financial’s panel will be one of the most varied in the market. Morgan has also spruiked I-Financial’s compliance model, which allows brokers to maintain a relationship with their chosen aggregator while operating as a Credit Representative under I-Financial’s ACL. “We expect many brokers will find the complexities of running their own ACL increasingly challenging, while others who are credit representatives under their aggregator may find restrictions on their businesses unwelcome,” Morgan said. Jones has also predicted that many brokers may come around to I-Financial’s model in time. “Upon a broker’s ACL renewal, the I-Financial business model may be a perfect option for those who may find compliance issues too onerous.”
Banks well prepped for house price pandemonium Australian banks would be capable of withstanding a severe downturn in the domestic mortgage market, according to research and ratings house Fitch Ratings. The results of Fitch stress tests indicate that gross losses incurred by the four major banks in the event of a major crisis in the mortgage market would be “manageable”. However, Fitch Ratings senior director John Miles said of more concern in such a situation would be the broader state of the economy, due to the impact any downturn would have on the banks’ commercial loan books in addition to their mortgage portfolios. In a report released in January, the ratings house argued that a mortgage market downturn “is not imminent”, but that Australia’s relatively high household debt to income burden and the banking sector’s reliance on wholesale borrowings are vulnerabilities in the market.
In the most severe scenario tested by Fitch, an 8% rate of base defaults combined with a 40% decline in house prices was tested. Other more mild tests included a 2.5% level of base defaults and 20% house price decline, or 6% in defaults alongside a 30% decline. “Even under severe mortgage market downturn assumptions, Australia’s four major banks exhibit substantial capacity to absorb mortgage losses, largely reflecting relatively conservative loan-to-value ratios (LTVs) and protection afforded by LMI,” Fitch reported. “However, should Australia experience a mortgage downturn of these magnitudes, stress in the corporate and SME sectors would most likely be a contributing factor, and deterioration in major bank asset quality would be broader than just the mortgage portfolios.” Fitch reported that its severe and moderate scenarios bear some resemblance to experiences in countries that suffered mortgage
market downturns during the GFC, such as the US and Ireland. The agency noted that mortgage insurance provides good protection for the major Australian banks, assuming covers operate as expected. “Although capital resources in total appear sufficient to meet losses under each of Fitch’s scenarios, high regulatory capital minimums may require additional capital to be raised,” Fitch stated. “In the unlikely event of a regulatory breach, without new capital and/or the relaxation of regulatory capital minimums, an insurer would most likely enter into a solvent run-off.”
Speculation about the future of Australia’s house prices has varied wildly, from predictions of continued stellar growth to possible major corrections. Investment bank Morgan Stanley provided one of last year’s most dire predictions, when its chief strategist Gerard Minack suggested that Australian property was 40% overvalued and could be in for a fall. He warned clients not to be ‘Ponzi borrowers’, arguing that owner-occupiers were playing a game of “financial chicken”, competing for property by taking on imprudent amounts of debt.
Market forces come to a head Housing affordability will continue to place pressure on house price growth and lending commitments in 2011, according to Datamonitor. Senior financial services analyst Petter Ingemarsson told Australian Broker that as average mortgages rise faster than the average income, a house price situation is being created that “can’t go on forever”. While the opposing force of housing shortages has managed to maintain house price increases, Ingemarsson said with a high level of national disposable income now being locked up in interest charges, affordability stress was likely and the situation was “coming to a head”. Lending commitments are likely to feel the effects, as will younger buyers.
For all the latest mortgage industry news, visit www.brokernews.com.au
Extend guarantee, Hockey tells Mortgage House Shadow Treasurer Joe Hockey said the Coalition would rather see a government guarantee of the RMBS market than a further cash injection into the bonds. The government has proposed a further $4bn injection in addition to the $16bn it has pumped into the Australian RMBS market. Speaking at the Mortgage House annual conference in Sydney, Hockey said the RMBS market needed further liquidity to stimulate competition among lenders. The Coalition would rather see the government back the securities than buy them. “My preferred course would have been to provide a government guarantee to RMBS paper. The government’s was to buy Australian RMBS paper,” Hockey said.
“I am instinctively opposed to just increasing government borrowing.” He went on to express opposition to Treasurer Wayne Swan’s proposal to abolish deferred establishment fees. “If we abolish exit fees, the banks will charge that fee somewhere else. I’m also aware that smaller players rely heavily on exit fees to remain competitive.” The Shadow Treasurer also stated that housing affordability is the biggest barrier to entry into the housing market, and that addressing supply shortages rather than offering home buyer grants or incentives could help ease this issue. “It is absolutely essential the issue of housing affordability be recognised as an issue of national
Mortgage House web functionality a first
Mortgage House is revamping its online tools for brokers in a bid to streamline and simplify its application process. According to chief operations officer Neil Sayer, the upgrades include real time lead distribution from the company’s head office, an improved borrowing capacity calculator, an application form with built-in business rules and an LMI calculator. Chief executive Ken Sayer said the updates will be rolled out throughout the year. “Our quest for the year is to create an intuitive and interactive application form.” Ken Sayer highlighted the built-in business rules on the Mortgage House application form, and said few companies have this functionality.
“All the business rules are in there, all the numbers are crunched for you. It’s designed to give you the information there and then,” he said. “You find most organisations won’t give you the business rules because they’re afraid you’ll manipulate them.” In addition, Sayer said the application form will allow brokers to immediately see where an application may hit snags by flagging fields for review. “We have a high level of transparency around credit policies. The review items tell you where the credit is falling short,” he said. In particular, Sayer believes the company’s LMI calculator is a first. The calculator will have the ability to capitalise the LMI premium to the loan, telling brokers and borrowers not only how much the premium will be, but how much will be payable by the borrower. “There’s not a bank, building society or credit union in the country that has this functionality,” Sayer said. The forms will also aid in NCCP compliance by automatically auditing a broker’s actions in the system, Sayer said. “Every keystroke is audited, not just every word or phrase. The system can tell me, for example, ‘[The broker] came in on page 54 for five minutes and exited without doing anything’.”
concern. Having a one-off affordability program is not the answer. The big challenge in the next 3 years will be ensuring enough supply in the housing market,” he said. Hockey said that he will continue to promote the Coalition’s nine-point plan to encourage banking competition, and praised the government for adopting some of the measures in the plan. “The government has taken some parts of my plan, which I’m thrilled about. I’m not precious. I don’t have a copyright on it or anything,” he said. However, Hockey has called for further measures, such as an independent, in-depth review of the financial services sector. “We need a proper review of the entire
financial services system, like the Wallis review,” Mr Hockey remarked.
Embrace fee-for-service, industry urges Mortgage brokers should value the service they provide by charging a fee for service – which is unlikely to result in ‘disaster’ for the industry, as suggested by Australian Finance Group. Advantedge general manager of distribution, Steve Weston, and aggregator Ballast’s general manager, Frank Paratore, have both come out in support of brokers charging a fee for service. “I can absolutely understand the immediate view that if we charge fee for service as a broker, and we have been providing our services for free in the past, then we are going to be at a disadvantage to a lender or another broker who doesn’t charge a fee,” Weston said. However, Weston said he expects that over time more brokers will indeed be charging a fee-for-advice – but that they will need to realise the value they are providing first. “The biggest challenge we will have is not determining how much the fee-for-advice should be, or how it is charged,” Weston said. “Until brokers are comfortable, and really believe they are providing value over and above a direct lender, then it’s going to be a hard-sell.” Paratore said he thinks the lending market should move down the path of fee-for-service, in a similar way to the financial planning industry. “My firm belief as a broker is that you truly need to value the service you are
providing,” Paratore said. “We really shouldn’t be scared of it – we should embrace it.” The transition will be harder for new entrants to the industry or transactional-based brokers, Paratore argues. “They will find it tough, as opposed to brokers who see themselves more as an holistic service.” Earlier this year, AFG suggested that a wholesale move towards fee-for-service would result in disaster, by increasing the dominance of major banks and causing an exodus of mortgage brokers. An online poll being conducted by BrokerNews has found overwhelming support among our readers for fee-for-service. When asked if they would be transitioning to charging a fee following commission cuts, 92% of the 255 respondents indicated they would.
PLAN takes wraps off referral program PLAN Australia has detailed the merits of a new referral program to allow brokers to deliver motor vehicle finance, plant and equipment finance, commercial property finance, cash flow finance, franchise finance and construction and development finance to clients. The program, launched this year, will give brokers access to professional business and equipment finance specialists in order to service clients with business financing needs. PLAN CEO Ray Hair said that the referral program will enable brokers to further diversify their income streams. “Commission cuts and reduced mortgage activity as a result of the GFC mean brokers need to increase productivity and/or diversify their revenue,” Hair said. In addition to providing new sources of income, Hair said that the diversification offered by PLAN’s referral program will also better enable brokers to provide comprehensive services to clients.
“The rationale for diversification is far greater than remuneration alone. Brokers should be able to meet all the finance requirements of their client if they are to provide a comprehensive service. If you cannot assist your customer, someone else will, and potentially that someone else will also provide mortgage services,” he said. “Brokers are now seen as a trusted adviser rather than just the facilitator of a transaction. Those that can offer financing services outside of residential mortgages will build deeper client relationships that are more productive in terms of both referred business and also the best outcome for the client. They do not have to be all things to all people, but they should have the network to assist their customers.” Hair said he expects demand for business and equipment finance to grow, and that brokers utilising the company’s referral
program will be able to capitalise on this situation. “PLAN Australia is confident that demand for business lending and equipment finance will increase in 2011 as the economy
expands and brokers increase their market share,” he said. “Professional, structured referral relationships will be a strong contributor to this growth.”
News Rates may skyrocket by year’s end, says Access
While interest rates are likely to remain on hold in the near term, borrowers can still expect a rise of 100 basis points by the end of the year or the beginning
of 2012, according to Access Economics. The predicted rise would add $200 a month to the average mortgage. The company’s predictions echo those of many other industry analysts. Following lower than expected inflation figures from the Australian Bureau of Statistics, the RBA was expected to leave rates on hold when it met in February. “The Reserve Bank will be heartened by the low inflation result and will remain firmly on the interest rate sidelines until mid-year,” CommSec economist Savanth Sebastian predicted. “The super-low inflation reading all but ensures that
interest rates will remain on hold for now. And given that interest rate settings are already restrictive it is looking likely that the next rate hike will not take place until well into the June quarter – especially given that there are parts of the economy like construction, manufacturing and the services sector going backwards.” However, Access Economics predicts this rate freeze will soon pass. “Don’t get your hopes too high that the Reserve Bank has already done its dash on interest rates for this cycle,” a report by the company said. “Capacity is too tight, income is rising too fast, and underlying
inflation is already close to bottom.” Sebastian agreed that the central bank may feel the need to tighten rates toward the latter half of the year. He indicated the rebuilding efforts from the recent floods may add to inflationary pressures on the RBA. “The floods around Australia and the resulting rebuilding phase have the potential to add to inflationary pressures in terms of building costs and sliding unemployment. The key will be how quickly labour markets tighten up. If wage inflation becomes an issue then the Reserve Bank would have to move on the rate front,” Sebastian said.
Home loans rise for third Resi responds to consecutive month fixed rate demand Figures released by the Australian Bureau of Statistics show a rise in new home loans for the third consecutive month. The figures for November 2010 indicate a 2.7% increase in loans for construction and a 9.7% increase in loans for the purchase of new homes. Housing Industry Association chief economist Harley Dale has expressed cautious optimism over the results. “It’s encouraging to see a bottoming-out in new home lending over September– November 2010, although we remain mindful that the full impact of last November’s rate hikes is yet to emerge,” he said. Dale has urged a hold on interest rates to allow for further recovery of the home loan market, while predicting a slump in new housing construction for 2011. “A period of interest rate stability this year would certainly enhance the prospects of a slow
recovery in new housing confidence. However, the lagged impact of interest rate rises and ongoing credit constraints will generate a weaker level of new home building in 2011, meaning only two years in a decade when residential construction has risen,” he said. Mortgage Choice spokesperson Kristy Sheppard has echoed Dale’s sentiments, saying that the November data may not be the best indicator of the health of the housing sector in light of November’s interest rate rise. “We must keep in mind that variable home loan interest rates increased over November and it often takes a few weeks for a home loan application to reach the unconditional loan approval stage,” she said. “December’s housing finance data will provide a better picture of where new property buyers stand,” Sheppard added.
Non-bank lender Resi has launched a new 50/50 fixed and variable rate home loan, allowing borrowers to fix up to 50% of the loan for two years. The product’s introductory rate is 6.99% on both the variable and fixed portions of the loan. Resi CEO Lisa Montgomery said the loan reflects growing consumer demand for fixed rates. “We’re noticing increased enquiries from consumers focusing on certainty. I’ve always been a big believer in hedging your bets when it comes to fixing in part of your loan. That’s why our 50/50 product really is the best of both worlds,” she said. Montgomery said the loan will carry no lock-in fee, no ongoing fees and no application fee. “One thing that consumers are very cautious of as they become more savvy is the comparison rate. Ours is 7.04%, so we feel very good about that. There are a lot of loans out there with a good annual percentage rate, but a
high comparison rate,” Montgomery said. As uncertainty over interest rates continues, Montgomery said that some borrowers have a tendency to fix their entire loan out of fear. “What we do see in the weeks following a rate rise is some knee-jerk reactions fostered by panic,” she said. “I’ve always been someone who’s spoken about fixed rates in a very balanced way. Someone is going to lose on fixed rates, either the borrower or lender. It’s very seldom the lender.”
Fixed rate fixation: demand on the rise National
6 month average
12 month average
Line of credit
Source: Mortgage Choice
INDUSTRY NEWS IN BRIEF MFAA educator ready for rush Intellitrain chief executive Paul Eldridge is expecting a possible swing towards the MFAA’s list of preferred education providers, once the mortgage broking association’s new Learning Management System is brought online. While Eldridge said it was too early to tell if being named a preferred provider will have a significant impact on the Brisbane-based training business, he expects “more traction in terms of numbers” once the MFAA’s system is rolled out. “We have already seen a number of organisations approach us since the announcement, which has been really pleasing,” Eldridge said. Last year the MFAA tendered for a select pool of training providers, and came up with a final list of six.
ING Direct discounts Orange Advantage Lender ING Direct has announced a new interest rate discount on its Orange Advantage 100% offset product, in response to broker feedback. Customers who have combined residential borrowings with the bank of $500,000 or more will now receive a discount of 0.35%pa on the Orange Advantage interest rate for the life of the loan. The discount measure – which would result in a current variable rate of 6.99%pa – comes in addition to an existing discount of 0.25%pa when customers have total residential borrowings of $300,000 or more.
Males make better refi targets Males are 10% more likely to look at options including refinancing in 2011, according to Mortgage Choice. In a survey conducted late last year, the mortgage broker found that 51% of the country’s female mortgage holders had no plans to make changes to their financial situation in 2011 or were unsure if they would. However, 61% of males – more than three in every five – planned to make changes in the new year. Mortgage Choice spokesperson Kristy Sheppard said males continue to be more “financially proactive”, and that their intentions to make financial changes had risen from 45% since the previous year’s survey. Overall, males and females together were more likely to review their finances during 2011 than in 2010, when just over one third indicated they would do so.
CBA ditches fees to placate customers The Commonwealth Bank has announced the removal of fees across several mortgage products in a bid to win back customers angry over the bank’s November rate hike. CBA drew the brunt of consumer anger toward the major
banks when it raised its interest rates 45 basis points about the Reserve Bank’s official cash rate move. A November survey into bank customer satisfaction by Roy Morgan Research showed CBA became the target of public outrage over out-of-cycle rate moves, dropping to its lowest home loan customer satisfaction rating in 5 years. The changes to the bank’s mortgage products includes the temporary removal of mortgage establishment fees, mirroring moves by Westpac late last year.
No deposit enquiries on the rise Loan Market has reported an increase in first homebuyers seeking no deposit loans. Chief operating officer Dean Rushton said 25% of the company’s enquiries in January have come from people seeking home loans with no required deposit. “There remains strong interest in borrowing the whole cost of the property, but lending restrictions which require genuine savings contributions of around 5% towards the property purchase means these people are not going to get a loan,” Rushton said. A return of 100% loans is also unlikely, Rushton said. He warned borrowers to be wary of loans which advertise themselves as no deposit, as they carry extended conditions and costs.
Your Money takes the pain out of money management The publishers of Australian Broker and MPA have launched a consumer money title – Your Money Magazine – that will make managing money easier for your clients this year. Your Money Magazine is a refreshing take on money matters that aims to help Australians achieve the lifestyle they desire. The launch issue highlights include investing like an expert in shares and property, how to get started and make money online, and cashing in on the best high interest savings accounts. Look out for the first issue at your newsagent or subscribe online at www.yourmoneymag.com.au.
Westpac index shows waning growth More economic analysis has shown sluggish economic activity toward the end of 2010, mitigating the need for an RBA rate rise early in 2011. The WestpacMelbourne Institute Leading Index, indicating the likely pace of economic activity three to nine months ahead, was tracked at 3.5% in November. The result is slightly above the index’s long-term trend of 3.2%. Westpac chief economist Bill Evans said “Westpac does not expect to see the next rate hike until the September quarter, although the stronger likely growth profile in the second half due to the rebuilding program points to upside rate risks in the second half.”
News cont. from cover
One thing that suggests this may be happening is that broker market share doesn’t seem to be able to crack 50%.” As Gen Y and Z enter the housing market – having grown up being comfortable with the idea of conducting business online – turning to the Internet for finance may seem a logical step. Crossley argues that the opportunity exists for lenders to forge new direct online relationships with borrowers. “Arguably, one of the most important long- to medium-range concerns that lenders should be paying attention to is the fact that about 400 million people trust Mark Zuckerberg, and are willing to put a fair amount of personal information online,” Crossley said. “It would not take a great deal for that information to become useful
to lenders once they’ve established the appropriate relationship. Evidence suggests a substantial number of potential borrowers do their looking around online late at night. Those people will increasingly be using Facebook for their non-physical social interaction. They are increasingly comfortable with the idea of people knowing more about them.” However, while borrowers may increasingly secure direct finance – cutting the broker out in the process – Crossley argues the market for more personal service is unlikely to vanish. “Unless you know exactly what you’re looking
For all the latest mortgage industry news, visit www.brokernews.com.au
for, the need for some kind of hand-holding is quite significant. Brokers deliver a premium service to borrowers that require handholding.” Crossley also suggested the client base for online direct sales may be entirely different from those who would be inclined to seek out third-party mortgage brokers. If direct online sales are set to experience big growth, Crossley said it would only happen in a demographic not inclined to use the broker channel in the first place. Likewise, Paterson said he does not foresee the direct online market usurping the broker channel – though it may see serious growth in sales volumes. “It probably will never go beyond 25% of broker sales,” Paterson predicted. “People like the personal comfort aspect of brokers.” However, he said brokers need to be aware of the rates being offered through the direct online channel in order to remain competitive. “Brokers will need to watch lender pricing at the internet source and not become complacent. The online product in many fields has exploded.” The online channel also faces serious limitations. “One of the key elements lenders must determine is that a loan is not unsuitable,” Patterson said. “Lenders can’t possibly determine this online. There are many other aspects to responsible lending that require, in my opinion, face-to-face contact and/or added processes.” The online channel could even present an opportunity for savvy brokers, Firstfolio’s Flack believes. As more business moves online, brokers will be able to capitalise on networking with clients via the internet, and could potentially see more sales volumes. “Brokers who embrace an online model will be able to potentially complete more deals,” Flack said. “Our internal sales consultants
Aggregators should help small brokers adapt Small broking operations, in competition with larger broking groups, may not have the financial resources to harness the full potential of online client interaction. Mortgage industry analyst Tony Crossley argues that aggregators should step up to the plate. “Aggregators need to consider what technical support is necessary to allow customers to interact with broker staff as easily and unthreateningly as possible, and at a time that suits them.” He pointed to the growing use of live chat capabilities with sales representatives or technical support experts. Services such as these offer the convenience and relative anonymity of e-commerce, while still enabling borrowers to seek personalised advice. This would have the potential to draw-in clients who would otherwise not be inclined to seek advice from brokers. He said aggregators are better positioned to provide this infrastructure than most brokers.
dealing exclusively online settle in excess of $6m in loans per month. For a broker the issue is how to build rapport to generate referrals and new leads online.” Crossley believes the online environment can be well suited to meeting the needs of clients. Brokers can interact with clients
at any time, and from anywhere. “The need to interact with customers at times that suit the customer is paramount. It would be unwise to assume that borrowers will ever move back to meeting with brokers at a time that suits the broker,” Crossley said.
ING describes online market While ING Direct has seen its online mortgage sales grow, the second-tier lender says it remains committed to the broker channel. ING head of mortgages, Ray Esho, said customers who utilise the bank’s online channel are typically those who have a greater knowledge of home loans. “They are also generally more tech-savvy, utilising our website and online tools,” he said. “A proportion of customers who approach ING Direct through the direct channel already have a relationship with us. They will often hold a savings or transaction account with ING Direct and are very comfortable with our online approach.”
Kelly, ASIC front Senate inquiry
Westpac CEO Gail Kelly appeared before the Senate inquiry into banking competition as it reconvened in late January, telling the economics committee that while the bank supports some of the government’s proposed reforms, it is not in agreement with all the measures suggested to aid competition. “We are broadly positive. There are some elements that we are more enthusiastic about than others,” Kelly said. “Covered bonds are valuable for us. It’s not a panacea but it’s an important next step to allow us to leverage our mortgages … that’s very helpful.” However, Kelly has criticised the government’s plan to ban deferred establishment fees, pointing to ASIC regulations surrounding the fees as sufficient.
“Mortgage exit fees – we don’t see that as a necessary step. I don’t think that is something the government should be looking at. There’s legislation now that makes fees fair and transparent. I don’t think it will have any effect on competition, it could hurt smaller lenders and from our point of view it’s not a big issue,” she said. Kelly went on to question the proposal’s anti-price signalling measures. “We are against price collusion or signalling but we don’t believe it occurs in the industry and we don’t think it [anti-price signalling legislation] would have a positive impact on competition and could have unintended consequences if it’s poorly implemented,” Kelly remarked. ASIC has also fronted the inquiry, weighing in on the cost of LMI. ASIC spokesman Greg Kirk told the economics committee LMI premiums remain a barrier to borrowers looking to switch to a different lender. “It’s certainly a cost consumers face if they are going to switch, which means that you either have to switch to a much better loan or it takes much longer to get to the break-even point where you start getting the benefits of switching,” Kirk said.
ASIC pushes through last licences ASIC is expecting to clear all outstanding Australian Credit Licence applications by the end of March, well ahead of the 30 June deadline the regulator was given under new laws. As of last week, 77% of applications received by the regulator were either approved or were at draft licence stage, and the remaining 23% were still in the assessment stage. The regulator aims to have between 90-95% through to draft licence stage by the end of February, though this will depend on how quickly brokers supply supplementary information. Speaking with Australian Broker, ASIC’s senior executive ;eader for the ‘Real Economy’ team, Kathrine Morgan-Wicks, said the regulator had not formally refused any licence applications, but some had been withdrawn after follow-up questions were asked. Wicks also revealed ASIC was still receiving late applications as of last week, with
over 90 having been received by the regulator after the official deadline of 31 December 2010. Wicks said ASIC’s policy was that any registered operation that has submitted a licence application may continue operating, but warned those who have not applied and who have not become credit representatives under another licence to cease operating or face “strict penalties”. The regulator began running national surveillance operations in October last year, and will be actively checking Yellow Pages, sensis and other data against its current licence list. “We are very keen to make sure that everyone out there is inside the tent: we want to make sure the market is captured,” she said. The regulator will first issue warning letters to those operating without a licence, and will visit them to confirm operations have ceased. ASIC will also be able to refer these cases through to its enforcement arm, after which
they will face criminal penalties under NCCP law. ASIC Commissioner Peter Boxall said: “Our decision to undertake surveillance action demonstrates our determination to ensure the effectiveness of the new national consumer credit regime.” The maximum criminal penalties for operating without
registration or a licence are: $22,000 for individuals and $110,000 for corporations, or two years’ imprisonment or both; or civil penalties of up to $220,000 for individuals and $1.1m for corporations, partnerships or multiple trustees. ASIC may also take action – other than prosecution – at its discretion.
ASIC’s ultimatum If you are a credit-registered person who applied for a credit licence before 31 December 2010, you can continue to engage in credit activities until we make a decision on your licence application. If you are a credit-registered person who missed the 31 December deadline, you must stop engaging in credit activities until you: • apply to ASIC for a licence, or • ensure that you are otherwise permitted to engage in credit activities (eg authorised as a credit representative). If you are setting up a new consumer credit business, you must not engage in credit activities until you have been granted a credit licence or you are otherwise permitted to engage in credit activities (eg authorised as a credit representative). Strict penalties may apply to persons who unlawfully engage in credit activities, including a maximum criminal penalty of $22,000 for individuals ($110,000 for corporations) or two years’ imprisonment, or both. Source: Australian Securities and Investments Commission
Time to find favour with fee-for-service AFG claims a move to fee-for-service mortgage broking would cripple the mortgage industry, but Darryl Benn says the move is about the survival of the channel itself I can understand AFG’s sentiments regarding why ‘fee-for-service’ would be a ‘disaster’ for consumers and the mortgage industry, but I would like to present a few comments that may help AFG to appreciate that this discussion is really not about ‘fee-for-service’, but rather the survival of the broker channel itself. Firstly, it is important to understand that there is a place for both transactional mortgage broking and fee-for-service ‘advice-based’ broking without damaging the mortgage broking channel for consumers: many already operate successful business this way. The question is what is really driving brokers to consider fee-for-service?
Consider the following
The only reason why fee-for-service has become a consideration is because lenders have reduced commission payments to a level where a broker cannot sustain their business, and many brokers have been forced to walk away from the industry. Reduced demand for borrowing, low valuations and the tight lending policies have also contributed to lowering loan settlements to a level so that brokers just cannot survive on the commissions structures currently offered. Due to inadequate commissions brokers have had no choice other than to look for ways to generate additional income.
Why can fee for service contribute to a better borrowing experience for consumers? From a consumer’s point of view they actually are better served with a fee-for-service as the broker can then deliver a broader and more extensive level of services, especially with complex transactions.
The Mortgage Planner Group, an advocate for advice-based broking, appreciates that mortgage brokers do provide a far superior level of service than what is available by going direct to the lender. For some reason many are yet to understand that this is a professional service provided by a specialist and should have a fee attached.
Why do lenders pay a commission?
From a lender’s point of view, they only pay a commission for a broker to qualify a client, complete an application, collect documents and assist in the process to settlement. Lenders do not see it as an obligation to pay a broker’s overheads. Just as a lender calculates the commissions to pass on to a broker to run a profitable business, brokers must calculate the revenue they need to generate to run a profitable business. If commissions do not provide sufficient income brokers need to explore how they can generate additional income.
What can we do as an industry?
Our industry should be delivering a message to the public that we offer a different type of service to that available by going direct to a lender. As consumers begin to appreciate that the service delivered is different and offers great value to them, loan volumes from the mortgage broker sector will actually grow as more consumers will prefer the services of a mortgage broker as opposed to going direct to a lender.
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. Consumers do pay for advice when they go to an accountant, solicitor, financial planner and they will pay a mortgage broker once they appreciate the difference of service. I don’t believe consumers have a major concern about commissions; the real issue confronting brokers is the amount of commission paid to brokers so they can sustain a profitable business.
AFG’s fee-for-service arguments rebutted AFG: Requiring customers to pay service fees would create a major obstacle to them seeking advice from brokers. By forcing buyers into the arms of lenders who have a vested interest in selling from a limited product range, it is inevitable that consumer interests would be seriously undermined. Darryl Benn: Although many brokers do deliver an excellent service to their customers without charging fees, often they do so by investing a great deal of time above what would be expected for the returns they receive. Brokers who currently offer ‘fee-for-service’ have not had a decline in their business nor have their clients rejected this form of service and gone direct to the bank. Actually, in practice the opposite has occurred as their businesses are primarily built on referrals because they offer ‘fee-for-service’. AFG: The move away from brokers would have significant unintended consequences. Broker numbers would dramatically decline. Given the importance of brokers to non-major lenders, their market share would also significantly reduce, ramping up the Big Four market share back to levels above 90%. This reversal of competition would be an additional blow to consumer choice. Darryl Benn: The only reason that 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. In regard to non-majors losing market share, 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 in effect create great competition between the majors and non-majors. AFG: With less competition, remaining lenders would have far less incentive to restrain future interest rate rises. Darryl Ben: If we address point one and two there would be no need to consider point three.
There is a place for both transactional mortgage broking and fee-for-service ‘advice-based’ broking
With commissions down, fee-for-service has risen to top-of-mind. We asked two practising fee-for-service brokers how they managed to make fees equal success smart broker can do to actually sell this fee for service. For brokers who know what they are doing, it’s a pretty easy sell.
Paul Giezekamp Director, Property Secrets
Q: Why did you begin to charge a fee for service?
A: In regard to trail commissions, and also upfront commissions, the main banks or the first-tier banks were staring to step back and reduce them, especially in regards to trails. A lot of them are saying you are not going to be paid trails for the first year or first two years. So I made the decision to say look, if they are going to be cutting back, and it’s going to be affecting my bottom line, I’m going to have to start charging a fee for service. If I’m just talking about our finance division, it’s really out of protection for them. So at the moment we are charging a $495 fee, and we are actually thinking we might double it to $995. The reason being that it is very hard as a broker to be able to trust that the banks are going to stay where they said they were. And all we keep hearing from them is ‘give us more deals’, and ‘we are now going to take away trails’, or ‘we are going to make you have to keep the loan for longer than two years before we start paying you trail’, restriction here restriction there, etc. So I thought, you know what? I’m not going to yell and scream and jump up and down, I’m just going to be upfront and transparent and show my clients that they have a choice. Nine out of ten clients want a specialist.
Q: Has it been a success, and will the client accept it?
A: We did it right before the credit crunch and everyone said it was suicide, but we actually ramped-up our business by 30%. And our settlement ratio went up 50%, because clients didn’t want to lose their $495. With that increase in volume we are very confident that – being specialists in mortgage planning moreso than mortgage broking – people will pay for it. Between 70 and 80% of people who are looking for a loan just want it all done for them, they want it as easy as possible – and the reality is, banks cannot execute it as good as brokers. There are certain benefits as far as being a broker that we can get from the banks anyway, and we can get free valuations with no application. There are things that a
Kiran Saldanha The Finance Professionals
Q: Why did you start to charge a fee for service?
A: I think it has grown out of the fact that we deal with a lot of clients who basically want free advice, and then they have the ability to take their business to the recommended lender. I initiated this at the start of 2010, for all new clients, as there was a huge amount of time being spent upfront, and the value proposition of what we were putting together was far greater than what was available either in a branch, or an average broker working for the likes of Aussie Home Loans. I clearly was not interested in doing the volumes of Refund Home Loans, and at the same time was very interested in looking at other options that you could get in front of the client. If I’ve got to take my business to a lender that is not paying a better commission than another – because that’s what happened to us at the start of last year as all the lenders started to do exactly what they wanted as far as commissions and trails went – the only way we could make an objective decision as far as the customer went was to actually charge them a fee. Then we can go the whole hog, and even if a lender is paying no commission, or a minimum of commission, that shouldn’t be the reason why that lender doesn’t get recommended.
Q: Has it been a success, and will the client accept it?
A: It is something that I discuss with the customer upfront. It’s an absolute upfront discussion. I say look, you can go to somebody out there who is going to look at how much they are going to get paid, or you can pay me, and the fee is a one-off, lifetime fee. We then structure everything for them upfront, and we put things in place as we move forward. What’s happened is that in the last year it has actually allowed me to go out and expand my business. So we now do a huge amount of work in the investment property sector. The model works well.
Insight EXECUTIVE COUNSEL Better Mortgage Management managing director Murray Cowan built his long-running business from scratch, through persistence and gaining the trust of stakeholders. He tells Australian Broker what it takes to survive and thrive Murray Cowan Name a business leader you admire. Why? Brian McNamee, CEO of CSL Limited, is a business leader I admire for his ability in steering a former government agency into a global leader in pharmaceuticals and blood products. From what I’ve read, he has a quiet, unobtrusive style which delivers results and earns respect from employees and peers alike.
What are the main goal/s that got you to where you are? I had a desire to make a difference and build something from scratch which I could look back on with a high degree of satisfaction. More specifically, from working with mortgage brokers in previous roles in the 1990’s I could see that they weren’t being adequately serviced by major lenders, and therefore I had a goal to establish a mortgage management business which was focused on delivering brokers better service and systems.
US property is top-of-mind for savvy investor clients, but should brokers wade into the challenges of foreign shores? Troy McErvale urges brokers to exercise caution
Is success due to talent, hard work, or luck? I believe a combination of all three is required to be a success. Which character trait has helped you the most in business? Persistence. What is the key to great business relationships? Trust is important and the key to building trust is to follow through on any promises or commitments. This gives the other party confidence that you will deliver.
What’s the first thing to look at when growing a business? You need to be confident that you can generate sufficient sales with enough margin to deliver a profit.
What’s the best piece of advice you’ve ever received? Walk when others run.
What trend are you currently watching? The internet, while not a new trend, is a medium which the mortgage industry has yet to fully utilise to the same extent as other industries as far as generating new business is concerned.
What is your next big ambition? It was a tough last two years for mortgage managers but we didn’t go into our shell in that period and continued to advertise and further develop our systems which have further enhanced our status in the industry. With the nonbank sector now experiencing the start of a resurgence, it is my ambition to take advantage of our enhanced position and deliver substantial loan book growth
ith property investment in the US the flavour of the month, it seems that a lot of would-be property investors are considering an investment purchase in this country. And why not? Discounted property (some of it very steeply), higher yields as a result, low interest rates, 30-year fixed rate loans, and favourable exchange rates all lead to a positive mix of circumstances that make the opportunity compelling. While there are certainly upsides, there are also the less obvious downsides. What most people just do not understand is that whilst financing property in the US is not impossible for “foreign nationals” (those people who are not US citizens, and have no residency status in the US either), it is very, very tough. By way of background, the lending market is very different in the US. In Australia, if you want a loan with the ANZ, you get a loan with the ANZ. They are a bank that operates nationally. As do Westpac, St.George / BankSA, Commonwealth Bank, National Australia Bank and so on. By contrast, in the US each lender needs to be registered in the particular state that they want to offer loan products in. Consequently, there are very few lenders who are registered in all states. Some truly national lenders in the US are Bank of America, ING Direct, Wells Fargo and Ditech, and that is about it. Problem one – none of these lenders offer loans to foreign nationals. The same rules apply to mortgage brokers – they are also registered on a
state-by-state basis. In reality, it is no good for a potential investor to talk to a broker from New York if they want to buy a property in Texas. Brokers there will not be familiar with the lenders and lender policy in that location. They need to talk to a broker who is active in the market they want to purchase in. What that means is if clients wish to finance their property purchase (and the property being bought will be the security for that loan), the property should be selected first. The lender selection will depend on the location of the property (which state it is in, but often also which county). So that is step one for clients – to decide which state (and county) they want to buy in. Some states – like Florida, for example – have a reasonable number of lenders who offer loans to foreign nationals; however they are restricted to the state of Florida for such loans. Other states have no lenders that will offer loans to foreign nationals. And then there are some states (such as New York, for instance), where there are only one, two or three funders who extend credit to foreign nationals. That is step two. Identify the lenders that will extend credit to foreign nationals in that location. Whether the lender will extend credit against the property depends on a number of variables, but the most important factors are: 1. Purchase price. 2. Property type (ie is it single family residential, multi-family, or apartment block)?
If your clients are like most Australians, they are looking to take advantage of the price reductions as a result of the GFC, and buy property at a low purchase price. Unfortunately, the lenders will probably have a minimum loan amount or minimum valuation of the purchase property, which will also vary from location to location. Now comes step three. They need to decide which property they wish to purchase, and see if they can fund it. To most people, it seems counterintuitive to do this. Perhaps the purchase objective is to leverage as much as possible, and thus property location will be dependent upon where the greatest amount of leverage can be achieved. Be prepared for a maximum of 70% (or even 50 or 60%) LVR. There is one more problem to be considered: Australian banking legislation. Some lenders (like Lloyds TSB, and Barclays Bank, for example) offer international mortgages to residents of many countries. However, Australian legislation precludes them from offering loans to Australians living and working in Australia. So there is the dilemma. And this is the reason why most Australians who say they want to invest in US property aren’t able to. It is very, very difficult to do so, and I have not even touched on the complexity of real estate practises and purchasing yet (which also varies from state to state). I talk to a lot of people, and observe the following:
The obstacles and risks associated with this strategy are as follows:
1. Many people seem to have a strong desire to invest in the USA. 2. The desire seems to be to purchase lower-priced dwellings that have decreased in value as a result of the GFC, as well as properties that will deliver a strong rental yield. 3. Investors have some cash, but would like to leverage as much as possible to enhance the return. 4. Investors’ knowledge is growing, but not yet at a level where they could invest with a degree of comfort (for reasons explained above). 5. Investors usually don’t know exactly where they wish to invest yet.
Quite honestly, this is what I think the majority of people in Australia who have an interest in investing in US property should be doing. About 95% or more of people do not know enough about US property (and related US property law, property financing issues, etc) to invest with a thorough understanding of the investment. Thus, poor knowledge equals higher risk.
MY WAY Markets may treat everyone equally, but MPA Top 100 Broker Vivian Wang from VMoney says working hard and providing exceptional client service can set you apart from the crowd
(a) Investors will find it difficult to qualify for a loan due to the property prices they are seeking. Thus any purchases will most likely need to be bought with all cash. (b) Any properties bought will be exposed to potentially poor returns if there is even one poorly performing property in your portfolio, thus your investment is exposed to higher risk of loss. (c) Time and effort and financial cost to complete due diligence is high (especially if the investor is going to fly to the US to view properties).
What is your greatest business achievement? Winning AFG’s Victoria Best Loan Writer of the year award in 2010 and being named an MPA Top 100 Broker in 2010 (21st).
Investment in a pooled property/ private equity fund would be a better solution for the majority of people. I say this because:
What’s the key to getting business through the door? Me and my team’s reputation for being professional, ethical, dependable and providing exceptional customer service.
1. The upfront costs and time compared with doing it yourself are lower. 2. The investment risk is spread over a few hundred properties instead of two or three. 3. They will be able to utilise leverage within the fund itself, and thus enhance their returns not normally achieved personally, and do so at historically low US interest rates. 4. They will still be able to take advantage of decreases in property values. 5. They will still be able to take advantage of favourable exchange rates.
What goal/s have got you to where you are? Consistently providing high service levels, and improving client retention through good marketing tools.
Troy McErvale is managing director of Freedom Home Loans, and operates an international finance brokerage in the US assisting international buyers enter the US market
Who has helped you the most, and how? My aggregator, AFG. They are like a business mentor for me – always offering guidance and good advice. What character trait do you most value in yourself? My professionalism and caring nature. I treat clients equally and always put clients’ interest first. How do you stand out from the crowd/competition? As most of our clients are property investors, we provide tailor-made mortgage solutions for our clients and set up plans to improve our clients’ financial condition and help them to build up wealth. What do you tell yourself when the going gets tough? The market treats everyone equally, so stay positive and try harder. Take advantage of good markets, do better in good years and take the hit in not so good years. What is one thing you want to improve in your business? Diversification of income. We will emphasis more on risk insurance and property investment this year. What piece of advice would you give an ambitious broker? Hard work will pay off, so don’t take short cuts on your career path. Your service is the result of your reputation.
Know your worth The art of valuing trail books can be both frustrating and mystifying. Kym Dalton from SAKS Consulting lets Australian Broker readers in on the nittygritty
he acquisition of a mortgage ‘trail book’ is, after all, the acquisition of a stream of cash flows. Like any stream of cash flows they can be valued and priced. There are number of elements present: • The behaviour of the cash flows themselves, together with their predictability • Any conditions surrounding the acquisition of the cash flows that may impact upon their receipt into the future • The ‘yield’ requirement of the purchaser, determined primarily by the determination of the risk and reward presented when considering the first two points above The principal things to consider are: • Book ‘seasoning’ – how long the mortgages have been in existence. “Older” mortgages have a propensity to repay (in whole or part) more quickly • The types of mortgages in the book – differing types of mortgages have differing repayment speeds. Things to be mindful of when examining the composition of the book include consideration of the mix of “prime” mortgages (maybe drill down to owner-occupied and investor), non-conforming, mortgages with high “exit fees” and low-doc loans For those interested in valuing trail books, there’s a wealth of material available on the web. There are organisations such as credit ratings agencies and some of the RMBS issuers that can give a prospective acquirer a guide to how mortgages behave regarding prepayment speeds. Probably a good tool to use is some of the issuers’ ‘investor reports’ for their pools of RMBS to see how much of the principal of the pool presently remains from the original amount of the issue. This is a good guide to the likely future behaviour of the trail book cash flows. Some of them produce a statistic called a ‘constant
Trail book buyers push prices up An influx of opportunistic trail book buyers into the market is starting to push prices up, as less sellers materialise than expected in the first months of the new year. During the transition to licensing under NCCP, many aggregators have been eager to snap up trail books as brokers exit the industry, or match Brad Driffill their own member sellers with buyers. However, Vow Financial’s WA-based account executive Brad Driffill said there are now more buyers than sellers, which is placing upward pressure on trail book prices. “The trend that I have noticed is that the price is actually starting to increase a bit,” he said. “We have had a lot more expressions of interest from buyers than we have had from sellers. That’s probably not just for Vow, it’s across the board.” Driffill said that opportunistic buyers are using this transition period to capitalise. “I think a lot of brokers who are set up well and have the capacity to buy these books, have for a while now been pre-empting that there will be a few books come onto the market and are now actively seeking to buy those books. We are starting to see a lot of those come out of the woodwork.” While saying the value of the trail book depends on a number of factors, Driffill said he has seen a broad range of multiples in the current market, from 1x gross at the low end, up to 2.4x. “It boils down to the expectation of the selling broker. Some of them probably don’t realise that there is a greater capacity to demand a better price,” he said. He said it is uncertain whether the next three to six months will see the expected influx of sellers.
prepayment rate’ (CPR), which is a coefficient a purchaser can apply to the trail book to estimate how long the cash flows that are being purchased will remain on foot. You can then work out a ‘weighted average seasoning’ – the weighted average of the time since the settlement of the mortgages; apply the CPR to estimate how long they’re likely to remain on the books and then discount the cash flows by your required yield and come up with a number or ‘value’ of the trail book. Simple! Other things worth considering that may impact your likelihood of getting the cash flows on a timely basis – or at all – are the following: • The clawback regime attaching to the mortgages • What representations and warranties the vendor of the book is willing to give. You also need to look at the capacity of the vendor to honour their reps and warranties! • The ‘history’ of the vendor’s relationship with the aggregator and lenders – has there been any disciplinary action, many EDR determinations? • The nature of the lender agreements. Can the lenders unilaterally vary the trails, or what are the events of default? • The detail of the aggregator arrangements – are the trails secure in the event of aggregator insolvency or default?
A new dynamic – regulatory risk?
As we know, the NCCP and Unfair Contracts regime is in place. Prospective purchasers may need to consider if this has the potential to impact the likelihood of receipt of the trail cash flows or indeed if there’s the risk that the purchaser may be responsible to the consumer for compensation. It’s worth remembering that consumers have access to the EDR’s for mortgages that were previously ‘regulated’ in UCCC terms – ie. it’s not just ‘credit’ granted postJuly 2010 that needs to be taken into account.
What are the current market rates?
Rather than undervalued or overvalued at present, I would say that the purchase of trail books is ‘underresearched’. To my mind, the traditional yardstick of say, ‘2 times gross’ is ‘under analytical’ The value really depends on the purchasers’ perception of ‘risk’. Acquiring a stream of cash flows needs to be ranked against other streams of cash flows. Thanks to the ‘deposit war’ there’s some pretty attractive streams of cash flows available from things like fixed-term deposits from ADI’s, while the dividend yield even of bank stocks is even pretty attractive. The cash flows from a trail book are conditional (all of the bullet points above) and they diminish over time as the mortgages prepay – so compared to these other investments they’re pretty ‘risky’. A purchaser’s yield requirements would probably be a fair multiple of that that could be received from more secure investment. However, there may be some ‘franchise value’ in a trail book: the access to customers may have value in itself for cross-sell and repeat business, another factor. Kym Dalton is a principal at SAKS Consulting, which provides business consultancy services across the full spectrum of Australia’s mortgage market
One year on What a difference a year makes… or not. AB reflects on the punditry, breaking news and influential trends that made headlines in the magazine 12 months ago
Issue: Australian Broker issue 7.2 Headline: “Yes, no … maybe” on RMBS comeback (page 2) What we reported: Australia’s aggregators are divided over whether securitisation will make a meaningful comeback in 2010. Australian Broker polled nine aggregators on the subject of RMBS markets, which showed some signs of revival in the last few months of 2009. Choice Aggregation, Ballast Finance, AFG, Loan Market and LoanKit were all confident of a turnaround in securitisation, though not to the heights recorded prior to the GFC. What has happened since? RMBS issuance did see an uptick in the first quarter of 2010, but sovereign debt concerns in Europe eroded these gains by the second quarter of the year. The $18bn of RMBS issued in 2010 was an improvement on the $14bn issued in 2009, but it came nowhere near recovering to the pre-GFC levels of $50bn. While the federal government has promised to inject a further $4bn into the RMBS market, many
non-bank and smaller lenders have criticised the measure as not going far enough. In a promising development for the future of securitisation, Pepper Home Loans late last year issued the first non-conforming RMBS in Australia since the onset of the financial crisis. Priced at $260m and issued without the support of the Australian Office of Financial Management, the issuance saw 25% of its notes acquired by overseas investors.
Headline: Big bank popularity slumps – survey (page 4) What we reported: The popularity of Australia’s major banks has plunged in recent months according to findings in an Australia-wide survey of more than 2,000 people conducted by non-bank mortgage manager Homeloans Limited. The survey has found that the number of Australians who like the four major Australian banks has fallen by 15% since August this year, and that fewer than one in four Australians now say they like the big banks. What has happened since? The major banks spent much of last year in the crosshairs of public criticism as unpopular out-of-cycle rate rises, record profits and huge executive pay
We are looking for outstanding lending professionals who want to become the Lending Adviser for some of Australia's most respected accounting firms and to build a significant lending business. Are you looking to build or expand your own lending business? Are you driven to succeed? Do you have a successful lending background? Do you have a reputation for providing excellent customer service?
packages drew consumer anger. Commonwealth Bank bore the brunt of the public backlash, with a Roy Morgan Research poll indicating the bank dropped to its lowest levels of customer satisfaction in five years following its decision in November to move first in hiking rates above the Reserve Bank’s official cash rate rise. Meanwhile, mutuals gained home loan market share and second-tier home loan products showing major leaps in popularity in Stargate’s Lender Popularity Index.
Headline: A slow start to the year expected (page 15) What we reported: Figures released by AFG revealed that 2009 ended with mortgage sales in steep decline, a trend expected to continue throughout January before picking up in February. According to the AFG Mortgage Index, December sales slumped 20% compared to the previous month with just $1.9bn worth of mortgages being arranged by AFG brokers in the lead-up to Christmas. This fall was more than double the drop of 8% recorded in December 2008. By comparison, mortgage sales in September 2009 topped $2.9bn. Mark Hewitt, GM for sales &
operations of AFG, told Australian Broker that January started off quite slowly with most people appearing to take an extended break, only returning to work on 11 January. Commenting on the poor figures for December 2009, Hewitt said: “We have been warning for months that three rate rises in a row was overkill for a vulnerable market, and these figures confirm our fears.” What has happened since? AFG reported that total mortgage sales dropped by 10% in 2010 compared with 2009, with the company recording $27bn in mortgage sales compared with $30bn in 2009. However, AFG reported a surprise uptick toward the end of the year, with a 12.4% rise from October to November, and December sales were 9.1% above those at the same time in 2009. Hewitt commented that the growth toward the end of 2010 may be reason for hope. “The data we’ve been seeing since November suggests the return of cautious optimism,” he said. “While the floods in Queensland will be a setback, we are starting to see a greater level of activity returning to the market in general. This is being aided by increasing competition from the non-major lenders.”
Finconnect (Australia) Pty Ltd is a wholly owned subsidiary of Count Financial Ltd, Australia's largest independent, accounting-based, financial planning business. With a network of 600+ accounting practices Australia-wide, Finconnect is experiencing a significant growth phase and is expanding the number of high quality lending specialists who will work with its accounting network as external lending specialists. This opportunity will see you positioned as the Trusted Lending Adviser for a number of high quality accounting practices who want to outsource their lending opportunities. You will run and operate your own business with the support, expertise and experience of an ASX-listed company that enjoys a reputation as being a market leader in the service of accounting professionals. The successful applicants will be based in either Melbourne, Sydney, Brisbane, Adelaide, Perth or various major regional centres around the country. You will preferably have tertiary qualifications and up to seven years' experience as a quality broker covering consumer and commercial lending. A track record of success in the broking industry is expected. Finconnect provides attractive compensation arrangements for high quality brokers and we are absolutely committed to seeing you succeed and forge a trusted relationship with your accounting partners. We look forward to embarking on this exciting journey with you. Expressions of interest together with your resume should be submitted to: Kavita Sharma, Administration Manager - email@example.com Applications must be received by Tuesday 22 February 2010.
Market talk My referrals from the premium real estate agents have increased considerably
Big end of town now even bigger Despite higher interest rates, sinking construction approvals and soft demand, the premium property market is booming
early every report one hears about the property market seems to verge on apocalyptic in its outlook. We’re told that construction approvals are declining, consumer demand is dropping and rising interest rates are frightening away first homebuyers. However, there’s one segment of the industry that doesn’t seem to be doing it tough. In the midst of the maelstrom of bad news, the premium property market is positively booming. Aaron Maskrey, PRDnationwide’s director of research, has pointed out an enormous jump in premium property markets in Australian capital cities. In Sydney, home sales above $1m increased 38% for the year to June 2010, while in Melbourne they increased 52% and rose by 29% in Brisbane. While premium house sales in Perth have not increased, Maskrey said, unit sales above $1m rose by a staggering 104%. “In most capital cities it has become a buyer’s market. Potential buyers at the premium end are not affected by small increases to interest rates and have access to a larger amount of capital to invest,” he said. “The largest concern during 2009 was the uncertainty of the economy that followed the GFC. People were worried that unemployment was going to spiral out of
control, or that inflation levels would rise. Now that the Australian economy has proven to be fairly robust, top-end buyers are looking to upgrade and take advantage of the buyer’s market.” Maskrey believes this should send a signal to brokers about a shift in the marketplace and a change in buyer demand. “This is the first strong signal that there is renewed confidence in the premium end of the market. Although it will likely remain a buyer’s market as a whole during the majority of 2011, expect confidence to return to investors by the middle to the end of 2011,” he said. Tracey-Lea Gilbert of finance broking company Diversifi, who specialises in the premium market, has seen this growth first-hand. “My referrals from the premium real estate agents have increased considerably,” she said. “I believe this is due to the housing in this sector becoming more attractive to professionals who at one stage were not prepared to pay the exorbitant prices. Also, many of my clients are professionals who are new to Perth and have the capacity to purchase in this market.” Gilbert believes this presents an opportunity to brokers who are willing to focus specifically on the premium market, but warned the demand may be limited to certain geographical areas and that the market can be “quite fickle”. “A broker may need to decide if they wish to deal with this niche market and become a specialist in this area. They will be required to be very professional and offer a ‘wow’ service to their clientele, plus a point of difference,” she said.
NUMBER CRUNCHING Breakdown of Australian property buyers – new developments
Australian resident first home buyers: 15%
Overseas buyers: 6%
Australian resident investors: 24%
Australian resident owner occupiers: 48% Source: NAB Australian Residential Property Survey
Suburbs with fastest expected capital growth (next 12 months) Albert Park (VIC)
Melbourne City (VIC)
Middle Park (VIC)
Brisbane City (QLD)
Port Hedland (WA)
Port Macquarie (NSW)
Port Melbourne (VIC)
South Hedland (WA)
South Yarra (VIC)
St Kilda (VIC)
Sydney City (NSW)
At a glance …
The amount by which Commonwealth Bank customer satisfaction fell in Nov-Dec 2010 following the bank’s out-of-cycle rate rise. Source: Roy Morgan Research
MARKET NEWS IN BRIEF Sydney and Melbourne’s affordability woes
Fitch’s new Demographia International Housing Affordability Survey has ranked Sydney and Melbourne as some of the least affordable property markets in the world. The survey, which ranks 325 property markets around the world in terms of affordability, rated Melbourne 321 and Sydney 324. The most affordable was found to be the US city of Saginaw, Michigan.
Brisbane residents urged not to sell
Lachlan Walker, a researcher from real estate agency Place, has urged residents in floodaffected Brisbane to hold onto their homes rather than selling at a discount. Walker has pointed out that homes affected by Brisbane’s 1974 floods recovered their median values within 12 months.
Builders hopeful about year ahead
A new Master Builders survey has found builders expect a slight recovery in the industry in the year ahead. “The latest survey results show builders are cautiously optimistic about their own business circumstances and the health of the Australian building and construction industry in 2011,” Master Builders Australia chief economist Peter Jones said.
“Builders expect activity to improve even though their own business conditions remained essentially unchanged during the December quarter and most of the survey’s business expectations indicators remain well below their recent peaks.”
Consumer mood sinks in flood crisis
The latest Westpac-Melbourne Institute Index of Consumer Sentiment represented a “significant fall” in sentiment, according to Westpac chief economist Bill Evans. Consumer sentiment fell 5.7% in January amidst flooding in Queensland, New South Wales and Victoria. While the index is still tracking 4% above its long-term average, it is down 12.9% from a year ago and 8% below its average level for 2010.
Slowdown fears as housing activity drops
The Housing Industry Association has pointed to new Australian Bureau of Statistics figures as evidence of a significant housing slowdown. The HIA said residential building work fell by 6.3% in September 2010, with a 9% drop in detached house activity. Meanwhile, work on major alterations and additions remained flat.
Land sales volumes tank
The latest Housing Industry Association-RP Data Residential Land Report shows that the
volume of land sales fell in the September 2010 quarter to a level that was 57% lower than during the same period in 2009. At the same time, the median value of land in Australia grew 2.8% to $186,629, or 5.2% during the year to September 2010. “The results show further increases in land prices and very low sales volumes, both of which bode poorly for housing supply and affordability in Australia,” HIA senior economist Andrew Harvey said.
Vacancy rates up in December
SQM Research reports national vacancy rates of 2.2% for the final month of 2010, 0.5% up on the month of November and 0.2% higher than December 2009. The figures still suggest a tight rental market across Australia, according to SQM. However, some individual markets have higher vacancy rates, such as Melbourne (3.6%), where there is an “ample” supply of rental property.
Mutuals increase market share
In the midst of continuing debate over banking competition, ABS figures for November show a rise in mutual market share. The data showed that credit unions and building societies saw their market share of new owner-occupied home loans grow from 10.1% to 10.8% in November, while banks’ market share fell from 85.5% to 83.9%.
People Queensland brokers fight on in flood aftermath
Above, in an image sourced by FirstMac, brokers stay afloat during Brisbane’s 1893 floods From the collection of Peter Marquis-Kyle
Steve Gravina, Toowoomba Home Loans
Mortgage broker Steve Gravina of Toowoomba Home Loans said the city is still reeling from flash floods which inundated homes and destroyed properties across the CBD in early January. “Toowoomba is a bit shell-shocked by what’s happened here. People’s focus is certainly not on buying and selling houses at the moment. It’s more of a recovery focus,” he said. In the aftermath of Queensland’s devastating floods, mortgage brokers across the state have worked to provide customers with support while dealing with the disaster’s effect on their businesses. In the inundated city centre of Brisbane, however, brokers found it more difficult to cope. Mike Buchecker of Aussie Home Loans in East Brisbane remarked that communication with customers after the flood disaster was difficult. Buchecker said phones were “pretty much useless” in the wake of the flooding, with congestion and coverage issues on landline and mobile networks. “[I’m] mainly emailing customers to find out if they are okay and need a hand. The challenge is getting around, so we’re not going too far and wide,” he said.
Meanwhile, FirstMac managing director Kim Cannon said the company’s Brisbane office continued to operate despite the effects of the flooding. “We are continuing to trade and provide services. Our thoughts are with the families and businesses across the state impacted by this disaster,” Cannon said. According to him, the company will try to lend a hand to customers who have been severely affected by the flooding. “FirstMac is supporting its customers affected by the floods in terms of hardship assistance on a case-by-case basis,” he said. Financial services education providers Intellitrain and AAMC Training Group have both announced initiatives to raise much-needed cash for the victims of Queensland’s devastating floods. Intellitrain is aiming to raise a total of $10,000, by donating $50 from every Certificate IV and Diploma enrolment until the end of February. Meanwhile, AAMC will donate $20 per enrolment in the same courses until the end of March. Mortgage Choice has also announced plans to help flood victims, with fundraising efforts underway across its franchise network. According to spokesperson Kristy Sheppard, the company’s head office started the fundraising with an initial contribution of $5,000, and has set up a fund throughout its franchises to provide financial support to victims of the disaster. The company’s Queensland state manager also helped to coordinate staff to volunteer in the cleanup effort. The FBAA, meanwhile, opened its offices to members who found their own workplaces inundated. “The FBAA has gone out to our members to advise that we have extra office space,” FBAA president Peter White said. “If people can’t get to where they run their business from they can come and use our office. We have extra computers, phones, fax machines; whatever they need. Everyone’s welcome,” he added. White praised the spirit of those affected by the flooding. “Being a ‘New South Welshman’, it’s amazing to see how Queenslanders have rallied together and supported each other.”
We have extra computers, phones, fax machines, whatever they need. Everyone’s welcome
for all the information you need daily
BREAKING NEWS • Keep informed with up-to-the minute news that affects your business • Find news that’s important to you first • Read up on trends that are impacting the industry • Find out how economic events will impact your business
www.brokernews.com.au | Committed to industry news, opinion and analysis
Caught on camera The Homeloans Ltd team invited its friends along to Sydneyâ€™s Opera Bar to celebrate Christmas and wind down after a busy 2010. The evening was the perfect mix of a few quiet drinks and sunset over Sydney Harbour Photography by Simon Kerslake
11 Image 1
Tony Carn, Les McDonald, Cameron Matthews, Tim Holmes and Scott McWilliam (Homeloans Ltd)
Doug Mathlin (Frontrunner Consulting), Gena Coote (ING Direct)
Greg Mitchell (Homeloans Ltd), Doug Button (Alfinanz), Wayne Browne and Jeff Haydn (Ausure) and Bob Hudson (Homeloans Ltd)
Saiso Singh (Financial Elements), David Downs (Custom Finance), Diana Stojkovska (Homeloans Ltd) and Laurie Shore (ING Direct)
Les McDonald (Homeloans Ltd), Gerald Hansen (Auspak Financial) and Ralph Galilee (Gallilee Solicitors)
Ed Burke (Homeloans Ltd), Tony Morello (Brentnail Finance), with Michaela McDonald and Greg Parkins (BCP Mortgages)
Richard Kouch (Westpac) with Scott McWilliam (Homeloans Ltd)
Ray and Genene Ethell (Homeloans Ltd) with Ashley Simpson (Galiliee Solicitors )
Cameron Matthews (Homeloans Ltd) and Scott McWilliam (Homeloans Ltd)
Image 10 Mark Mellick, Sharyn Amesbury and Julian Amesbury (Auspak Financial) Image 11 Kym Dalton (CreditED), Shelley Bird (Genworth) and Stephen Ferguson (Homeloans Ltd) Image 12 Chris Evans (Perpetual) and Rob Morrison (Adelaide Bank)
Image 13 Gina Coote (ING Direct) with Tim Holmes (Homeloans Ltd)
Got any juicy gossip, or a funny story that you’d like to share with Insider? Drop us a line at firstname.lastname@example.org
Sydney property can be murder
could avoid foreclosure by paying a near-$6,000 penalty. Allen has since brought a lawsuit against the banks, and they’ve withdrawn their proceedings. Now, we all know the US has been a bit foreclosure-happy lately, with banks snapping up homes so fast they’re almost bursting into flame. This, however, is a bit over-the-line. Australian banks have copped a lot of flak over their purported bad treatment of customers, but a move like this makes them look like saints.
Thanks for the memories
High Noon coming to Saturday inspections
he Sydney property market has driven more than one person to the brink of insanity and ruin. In fact, high rents in the Harbour City have left Insider eating soup made from lawn trimmings and wearing an old piece of rope for a belt. Now a new musical highlights just
the world, and a young agent finds success through some lessthan-conventional hard-selling methods, stimulating a boom in the estate sale business. Think Glengarry Glen Ross meets Sweeney Todd. Not surprisingly, the show has opened to … ahem … mixed reviews. But at some point, everyone must have considered homicide when looking at the pitiful vacancy rates in Sydney. Insider, for one, thinks motivated sales tactics like this could make the next season of The Block far more interesting.
how maddening Sydney’s real estate game can be. In Open for Inspection, competing real estate agents are driven to murder in order to best one another on the sales board. The musical tells the story of a not-too-distant future in which an organisation called the Mortgage Council controls
n elderly woman in America is suing her bank after being fined $5,860 for missing a mortgage payment. Not only was the payment only $436, it was the final payment on her 30-year mortgage. What better way to reward customer loyalty? Eighty-five-year-old Dorothy Rhue Allen missed the payment when she was laid up in the hospital, and her mortgage holders, LaSalle Bank, a Bank of America subsidiary, and Cenlar Federal Savings Bank, went ahead and started foreclosure proceedings. They kindly informed Allen’s lawyers that she
nsolvent subprime mortgage lenders Mortgage Lenders Network USA and American Home Mortgage in the US recently came up with an innovative method of dispensing with over 20,000 boxes of potentially revealing original mortgage loan documents – shred them. That’s right. Reuters recently reported the two defunct lenders were rigorously pursuing their bankruptcy judges during their Chapter 7 liquidation cases to allow them to shred the pesky piles of paper. Insider admires the audacity of these lenders – and thinks subprime an adequate description.
OFF THE CUFF international business and it provided a great entree to a range of different financial services companies. What do you do to unwind? Time with friends and family. We have three boys under 10, so as you would imagine that keeps us pretty busy. I also try (not hard enough!) to get to the gym a few days a week. What’s the most extravagant gift you ever bought yourself? Skiing in Japan with mates. Great fun and what a wonderful country.
Stephen Moore Chief executive Choice Aggregation Services What was the last book you read? The most recent was The Road, by Cormac McCarthy. Not a cheery read but an amazing story about a father and son’s journey in a postapocalyptic world. I’m still thinking about it weeks later. If you did not live in Australia, where would you live and why? Probably New York. We’ve been a few times and really love the buzz. If you could sit down to lunch with anyone you like, who would it be? Yes – I would have lunch with anyone. I really do like my food. What was the first job you ever had? First job was in reinsurance with Munich Re. Munich is a large
What CD is currently playing in your car stereo? I have my iPod connected in the car so listen to lots of different music. My most played list includes Green Day, Jet, Snow Patrol and Jack Johnson. If you could give anyone starting out in business one piece of advice, what would it be? It’s great being your own boss but don’t underestimate the effort. Make sure you have a business plan right upfront. Be clear on what you are trying to achieve and understand where you will source new clients. As you progress, make sure you service your existing clients. It’s not only good for retention it can also prove to be an additional source of revenue and referrals. If I was not working in the mortgage industry, I would like to be...? I’ve just moved into finance broking because I see great potential in this industry. I really feel like I’ve found a home and hope to be in the industry well into the future. Where was the last place you went on holiday? Skiing in Whistler, Canada. In fact, as I respond to these questions, I’m in Whistler!
Receive breaking news updates direct to your inbox. Sign-up for the FREE e-newsletter at www.brokernews.com.au AGGREGATOR / WHOLESALE BROKER Finconnect (Australia) Pty Ltd 1300 665 676 email@example.com Page 25 Mortgage House 133 144 www.mortgagehouse.com.au firstname.lastname@example.org Page 16 & 17 PLAN Australia 1300 78 78 14 www.planaustralia.com.au email@example.com Page 15 COMMERCIAL Banksia Financial Group 1800 333 114 www.banksiagroup.com.au Page 7 Think Tank Property Finance 1300 781 043 www.thinktank.net.au firstname.lastname@example.org Page 13 FRANCHISE Wealth Today 08 9207 1433 www.wealthtoday.com.au Page 9
LENDER Citibank Mortgages 1300 651 059 www.mortgagebroker.citibank.com.au Page 32 Homeloans Ltd 1300 787 866 www.homeloans.com.au Page 21 & 31
www.residex.com.au The House Price Information People
OTHER SERVICES Residex 1300 139 775 www.residex.com.au Page 23 Trailerhomes 0417 392 132 Page 26
Liberty Financial 13 11 80 www.liberty.com.au Page 3
SHORT TERM LENDER Mango Media 02 9555 7073 www.mangomedia.com.au Page 1
MKM Capital 1300 762 151 www.mkmcapital.com.au Page 2
NCF Financial Services Pty Ltd 1300 550 707 www.ncf1.com.au Page 8
Provident Capital 1800 668 008 www.providentcapital.com.au email@example.com Page 4
Rapid Capital 07 5562 2485 www.rapidcapital.com.au Page 6
NON-CONFORMING Pepper Homeloans 1800 737 737 www.pepperonline.com.au Page 11
TRAINEESHIP Traineeship Management Australia 1300 TMA 146 www.tmaus.net.au/ Page 19 To advertise in Australian Broker, Call Simon Kerslake on +61 2 8437 4786